Does common sense work in negotiating settlements with the IRS?
If you have a tax dispute with the IRS, expect negotiations to be different than what you may be accustomed to.
In most negotiations, both sides have something at stake, something to gain and lose. In other words, an element of risk.
That dynamic can change when you have to step up to the plate and negotiate with the the IRS.
You have a lot at stake. It can be an IRS auditor queuing up a report that your return is wrong and that you owe the IRS money. Or it can be a threat from an IRS Revenue Officer that there will be a seizure of your wages, accounts, or even your house.
The IRS employee is doing his job, but without the same risk of loss that you have.
Simply put, the skin in the game is different.
And the approach to negotiating is different, too.
This is an oversimplification, and it is not the fault of IRS employees. They have a job to do in ensuring compliance with our tax laws, to audit a tax return for errors, or collect an unpaid tax liability.
The point is to gain an understanding of the nature of negotiating with the IRS. You cannot approach negotiating with the IRS the same way you would in the private sector.
For example, in the private sector, if you owed a $5,000 debt to a neighbor, you might be able to say “I have owed you this money for quite sometime. I feel really bad about it. A family member will give me $2,500 to call it a day – does that make sense and work for you? Why don’t we move on.”
If that $5,000 was owed to the IRS, making sense and moving on would have little to do with it.
Making that deal would involve the IRS getting out their guidelines to determine if you qualified for an offer in compromise. Those guidelines are located in the Internal Revenue Manual. The IRS would need to review a financial statement from you, looking at your income, living expenses, your assets and your debts. The IRS would also require documentation to support your financial status: pay stubs, bank statements, written verification of your other debts, and proof of living expenses.
This process can take at least six to nine months.
So much for handshake settlements with the IRS, huh?
If the IRS, after reviewing your information, thinks they can get paid in full over the time remaining on the statute of limitations on collections (which is 10 years), they will say no thank you. They will wait and see.
If that debt was owed to your neighbor (or a friend or relative), they probably would not want to wait 10 years to see if they could get paid in full, and would rather get some money in now and call it a day.
Not so for the IRS – their settlement guidelines do not permit that.
In negotiating with the IRS, common sense is following their playbook, the Internal Revenue Manual. You need to know, understand, and follow their guidelines to have success in negotiating.
And it also important to understand the power of the IRS when negotiating. Threats get nothing, and usually will only make matters worse.
In negotiating with the IRS, remember: When your head is in he mouth of the bear, say nice bear.
And adjust your negotiating style to accommodate IRS rules and regulations.