Did you file your tax returns in April, as you should, and faced a bottom line tax liability you couldn’t afford to pay? Maybe you received a tax bill in the mail and you can’t pay the full amount right now without facing financial hardship.
If this sounds like your current situation, you might wonder if you can negotiate tax debt.
The IRS offers several programs to help you reduce your tax liability and pay off your taxes for less than the full amount owed. If you can eventually pay your tax, but not in a lump sum payment, you also have options.
In short, the answer to your question, “Can I negotiate my tax debt with the IRS?” is a resounding, “Yes.”
But negotiating with the IRS is not like negotiating with a car dealership to purchase a new vehicle or negotiating with your job for a raise.
Negotiating with the IRS means extensive paperwork, application fees, and long wait-times on the phone. The agency will dig into your personal finances and try to determine ways you can pay your tax debt. It’s often best to approach tax debt negotiation with a professional tax company by your side.
The Alleviate Tax team understands the proper way to help you file for penalty abatement, complete an offer in compromise application, or initiate a payment plan to reduce your tax debt over time. Don’t spend hours of your day waiting on the phone with the IRS. Let us help you negotiate your tax debt down to a manageable amount and reduce your financial stress.
What Happens If You Don’t Pay Your Tax Debt?
Failing to pay your past due taxes can lead to a tax lien, a levy on your bank account, and even wage garnishment.
With funds allocated through the Inflation Reduction Act, the IRS has ramped up its efforts to collect past due federal tax debt, particularly from high-income or high-wealth individuals, as well as partnerships and large corporations.
In January 2024, the IRS announced it recovered $482 million from 1,600 millionaires. But that doesn’t mean middle-income and lower-income individuals are immune to tax collections.
Fortunately, if you have unpaid IRS tax debt and it would cause financial hardship to pay the full amount, you can negotiate using several programs the IRS offers.
Penalty Abatement
The IRS provided automatic penalty abatement to individuals with unpaid tax debt from 2021 and 2022 tax filings. But you may qualify for one-time penalty relief if you have reasonable cause or have accrued failure-to-file or failure-to-pay penalties for the first time in three years.
Alleviate Tax can help you write and submit an appropriate letter to apply for penalty abatement. Often, penalty abatement is the first step in your negotiations with the IRS.
Payment Plans
If you can pay your tax debt in a lump sum, but need more time to pay, a payment plan might be the best solution.
Short Term Payment Plan
A short-term payment plan gives you 180 days to pay your tax debt and has no associated setup fee. Keep in mind, penalties and interest will continue to accrue. You can go online to check your total balance.
Installment Agreement
A long-term payment plan, or installment agreement, involves monthly payments for as long as 72 months. If you agree to pay via Direct Debit, you’ll pay a $31 application fee online or a $107 fee by phone, email, or in-person.
You have other options to pay, but the setup fees can be as high as $225 in 2024.
Partial Pay Installment Agreement
If the amount you propose to pay through your installment agreement won’t pay off your tax debt before the Collections Statute Expiration Date, you may qualify for a partial pay installment agreement.
After the CSED, the additional tax debt will be forgiven. You’ll need to complete a financial statement and provide documentation indicating that paying any more than the proposed monthly payment will cause financial hardship.
While you can negotiate a PPIA yourself, it’s best to consult with a tax professional to negotiate the best offer.
Offer in Compromise
IRS Form 656, Offer in Compromise booklet, outlines how to prepare this complex offer. Previously called the Fresh Start Program, an OIC can resolve your tax debt for less than you owe. But the IRS only accepted about one-third of OICs in 2022, according to CNBC.com.
Alleviate Tax resolved more than $6.4 million in federal tax debt through the OIC program in 2023 and has resolved more than $37.2 million for our customers through this program since 2018.
If you are up-to-date on your tax filings and have made your quarterly estimated tax payments (if you file as a business or self-employed), and can show that the IRS is unlikely to collect the full amount you owe, an OIC can be a viable alternative.
The IRS typically requires a $205 non-refundable application fee and an initial payment of up to 20% of your tax debt. If you are filing an OIC based on “doubt as to liability,” which means you believe your tax bill is an error, you won’t need to pay an application fee or payment.
Additionally, if you qualify as low-income, you don’t have to submit a payment with your application fee, as stated on the IRS website.
Currently Not Collectible
If you can’t pay any portion of your tax debt with monthly payments over time, your best option might be to file for currently not collectible status. This isn’t debt settlement, however.
If your financial situation improves, the IRS will resume collections action. In the meantime, penalties and interest will continue to accrue. The IRS may also file a Notice of Federal Tax Lien on any property you hold, including a primary residence.
Innocent Spouse Relief
You may qualify for innocent spouse relief, which absolves you of responsibility for tax debt acquired without your knowledge. This isn’t a negotiation to reduce tax debt. It shifts the responsibility to your spouse or former spouse, and may help taxpayers grappling with divorce or separation.
Final Note
You have options if you can’t pay the full amount owed on your tax bill. It’s entirely possible to negotiate with the IRS, although it often helps to enlist the help of tax professionals who understand how much the IRS is likely to accept as an offer.
Reach out to Alleviate Tax to see if we can help you settle your tax debt for pennies on the dollar.
FAQ
How much will the IRS usually settle for?
Depending on a taxpayer’s financial situation, the IRS may settle tax debt for a relatively small amount. The IRS takes into account your assets, including equity, your income and future income, and your living expenses.
If your offer to the IRS is equal to or more than they can reasonably expect to collect before the Collections Statute Expiration Date, the IRS will accept your offer.
Can I get my IRS debt reduced?
The IRS will reduce interest and penalties on your tax debt. You may also be able to reduce the total amount of debt you owe through a partial pay installment agreement or an offer in compromise.
