Negotiating with the IRS can be frustrating for the uninitiated. Intimidating. Overwhelming. Stressful. Not the best way to feel when entering into a negotiation, much less when the party on the other side has the power of the IRS.
When I was an IRS trial attorney, I negotiated on behalf of the IRS. Since moving into private practice over 20 years ago, I have spent most waking moments of my professional career negotiating with them, rather than for them.
And one thing is very clear: Negotiating with the IRS has its own unique, unstated rules of engagement.
Here are a few tips I recommend that you keep in mind for the best results for when you face an IRS audit, or an IRS Revenue Officer, or a call on an IRS 1-800 line:
1. Don’t rely on logic to carry the day. IRS decisions are not always made from common sense, or logic. Your way of thinking about a solution to a problem – options that would be successful in the private sector – do not apply to solving IRS problems.
The IRS process is primarily governed by their own internal rules and regulations. This guidebook is called the Internal Revenue Manual (IRM). The IRM contains chapter after chapter, page after page, of IRS procedures on handling most every conceivable situation – from audits to collections, and from levies and seizures to tax court litigation.
That’s the good news – there are guidelines for IRS negotiations. But is very important to know the rules, and recognize how to apply the Internal Revenue Manual to a given situation.
Success with the IRS starts with knowing what they know – getting into their playbook – the Internal Revenue Manual – and applying it to negotiations.
2. Loosening the grip is better than tightening the noose. Respect the power of the IRS. Do not understate it. Their hammer is most likely bigger than yours.
IRS problems are best solved from building a position of credibility. Credibility is gained from a show of respect to the IRS employee you are working with, whether you like it or not. There are certainly times to take off the gloves, but that should be a last approach.
And this is where the Internal Revenue Manual comes into play. Knowing the IRS rules, and when they are not being applied, or not being applied properly, is a powerful tool to loosen the grip.
3. When your head is in the mouth of the bear, say nice bear. It’s that simple.
4. The IRS is negotiating with monopoly money. You are negotiating with your money – which is very real. But there is not equal risk on the IRS’s side of the table.
The IRS employee on the other side is not negotiating with his own money. He has no immediate financial risk or stake. The IRS employee is just doing his job.
This is neither good or bad, it just is a part of the negotiations The IRS employee may have pride, may have ego, may be very skilled in his job, but ultimately has no “skin” in the game.
You, on the other hand, have a real financial risk. That has to be kept in mind and factored into any negotiating approach.
Clearly, negotiating with the IRS is unlike other negotiations. A unique set of rules (Internal Revenue Manual), practically unequalled power, and employees with no financial risk in the outcome. Knowing and applying the rules of engagement, understanding the mindset of the other side, and recognizing how to work within the IRS’s power structure is key to success.