How to Negotiate Your Own Payment Agreement With the IRS

April 13, 2012 by Jan Roberg
Filed under: IRS Debts 
I’ve heard two stories in just as many days about people who paid one of those TV tax companies thousands of dollars to help them with their IRS debt and when all was said and done, all they got was a monthly installment agreement with the IRS.  I’ve got a big problem with that–because in both of those cases, the people could have used that money to pay down their debt–and done the installment agreement themselves for free.
While not everyone can handle their IRS tax debt problem themselves, before you go sending thousands of dollars to some company with a 1-800 phone number, lets see if you can handle this yourself for free first.
The first question:  Do you really owe the money in the first place?  That’s pretty important.  If your taxes were professionally prepared and you have a huge balance due-well you probably really do owe the IRS.  On the other hand, if you haven’t filed for several years and the IRS says you owe them lots of money–there’s a good chance you don’t.  Anybody does taxes better than the IRS–anybody!  The CPA down the hall, H&R Block, VITA, the really bad tax place I won’t name down the street, and even my high school intern — they all do taxes better than the IRS.
True story:  a couple of years ago, I had a high school intern while I was working at the big tax company.  She had only been there for a couple of days, she was supposed to help with the phones, photo copies and data entry type stuff.  A woman came to me with an IRS tax debt of $16,000.  I took the case, but I was busy working on another return so I asked the intern to just do the basic data entry work for me.  A little while later she came to me and said, “I did the data entry but I’m afraid you’re going to have to show me what I’m doing wrong.”  “What do you mean,” I asked, “It’s just data entry.”  “I know,” she said, “But I heard you say she owes the IRS $16,000 and on all the returns I input she’s got refunds!”
I looked over everything the girl had done.  It was perfect.  Instead of the woman owing the IRS $16,000, the IRS owed her $8,000.  So when I tell you that anybody prepares a tax return better than the IRS–I’m not kidding.  Now you can go to an IRS office and they will help you with a return–those people know what they’re doing (usually), but those computer generated IRS returns that get mailed to you are garbage.  Plain and simple.
Second question:  Do you owe less than $50,000?  If you owe more than $50,000, you won’t be able to do an IRS streamline installment agreement.  If you can pay enough on the debt to bring it to $50,000 or less, then you can still do the streamline–otherwise you are going to want to get some help with your debt.  But let’s say you owe $52,000.  Well, you could pay some tax company $8,000 to negotiate for you, but if you paid $2,000 towards the debt, you could negotiate for yourself and still have $6,000 more pay your debt or buy groceries or whatever.
Third question:  How much can you afford to pay each month?  Let’s say you got hit with an IRS bill of $6,000 and you just didn’t have any money saved to pay it.  Realistically, look at your financial situation and figure out what you can afford.  What’s the most you could possibly pay without causing yourself a hardship?  That’s going to be your upper limit number.  You need to think it through because you don’t want to commit to paying $500 a month if it means you lose your house.
Here’s the mechanics of it:  In a perfect world–you should be able to pay of your IRS debt within 2 years (24 months.)   So if you take that $6000 and divide it by 24, then your monthly payment would be $250.  And if you can afford that–great!  That’s the preferred timeline for the IRS to have you pay off your debt.
But if you can’t handle the $250 a month, you need to know that the IRS will go as far as 72 months (or six years) for you to pay off the debt.  So if you take $6,000 and divide that by 72 then you get $85 dollars a month (I rounded up to the nearest 5.)
What you might want to do is negotiate the $85 payment, but then pay the $250 to get rid of the debt faster.  That way you’ve got some wiggle room if you lose your job or have some other issue.
Here’s the other stuff you’ve got to know:
There is a fee of $105 for setting up the installment agreement.  It’s lower if you set up direct debit from your checking account or it may be reduced if your income is low–make sure you ask about it, they won’t always tell you.
If you’re trying to negotiate a payment agreement and things are just not going your way, it’s okay to back out before you commit.  Tell them that you think you’re going to need professional help and that you will have to call them back later.
Once you do have an agreement, you have to hold up your end of it.  Make your payments on time.  If you’re late, your installment agreement is void and you’ll have to start all over again–including the $105 fee for setting up the agreement.  (Not to mention those nasty letters they send about putting a lien on your home and levying your bank account.)
One final word, if you can’t handle the installment agreement yourself–maybe your tax issue is too complex or you’re just too intimidated to deal with the IRS, get help from a local professional.  You’ll need an enrolled agent or CPA because they’re licensed to represent you before the IRS.  I recommend using someone local (okay, someone like me) that you can meet with in person.  Sometimes, IRS debt issues will cost a few thousand dollars to settle up, depending upon the work that needs to be done.  But it’s important to know what is going to be done before you pay that kind of money out.  $8,000 for something you can do yourself is too high a price.  Ask questions, know why they’re charging you that much, and what you’re getting for it.  You have a right to know.

Comments

16 Comments on How to Negotiate Your Own Payment Agreement With the IRS

  1. Jimmy Dunn on Wed, 17th Oct 2012 9:48 am
  2. I have been on full social security disability since 2004. However i have recently started the process of returning to work through the social security ticket to work program. my disability check was already being garnished for $200 a month for old student loans cutting my monthly check from $1,350.00 a month to $1,150 per month. Then just as i started getting the wheels of the ticket to work program rolling the IRS starting garnishing my check for another $200 a month reducing my montly check to $950.00 a month. The IRS garnishment is for taxes owed from the early and mid 90′s. As many have found out when you have not worked in a long time it cost money to return to work, in my case the biggest expense being getting my commercial drivers license again. As of right now the garnishments are making it very difficult to come up with the up front money it cost to return to work.
    Is it possible for me to get free or low cost legal help with this through the Pro Bono act or another simular service. I do want to return to work full time, but having a hard time getting there from here. Any advice will be greatly appreciated…Thank-You

  3. Admin Roberg on Wed, 17th Oct 2012 8:31 pm
  4. Hi Jimmy,
    Congratulations on getting on the Ticket to Work program. This is what I think you should do. Go directly to one of those IRS walk in centers. Here’s a link to find one nearest you. http://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1

    You’ll want to go see them in person, bring a copy of your social security disability check, bring your bank statement, and some copies of your bills. Let’s face it, at $950 a month–you’re not out there partying it up.

    You might be able to get on the “currenly uncollectible” program. It will get the IRS off your back for awhile until you’re actually making some money. Now if you can afford to pay them something–maybe $50 a month, that would be easier on you than the $200. It looks to me like you could make a pretty good case for yourself.

    Here’s another thing–the debt you owe, is it really money you owe or did the IRS file returns for you because you never filed? If the IRS did your returns, you might not owe as much as they say you do. Always make sure you check that out.

    There are lots of good people who work at the IRS and hopefully you’ll get one of them. If you are not getting the assistance you need, it’s okay to say, “Excuse me, I think I’ll need to get some professional assistance.”

    But really you do have a special situation and it’s worth asking for some assistance. Good luck.

  5. Kimberly on Thu, 7th Mar 2013 9:56 am
  6. Help, I am intimidated by the IRS. I don’t know if I can or should negotiate with the IRS or if I should get an attorney….
    You see in 2008 my tax consultant suggested that my husband and I qualifed for the New Home Buyers” tax credit”. Unfortuanately I didn’t ask the right questions. I didn’t realize it was not a “credit” at all it was a LOAN. That year we owed the IRS approx. $4000. So part of the “tax credit” went to pay the tax we owed the other part helped us with our debt.
    Now I find out that I was not entitled to this “tax credit” and the IRS says I now owe them 11,100.00 which is the amount they gave, the about we gave to them and late payment, interest etc.
    What do I do?
    If I could just pay them back the $7500 minus the $500 I have paid back to them (last year $250 and the year before $250) I would get the money and pay it in full.
    Is that even possible or will the IRS NOT work with me on this issue?
    I would so appreciate any advice you can give….
    Kim

  7. Jan Roberg on Sun, 10th Mar 2013 4:53 pm
  8. Hi Kimberly,
    First things first–you’re intimidated by the IRS. So don’t deal with them yourself. You’re a good person–okay so there was a mistake in your taxes. Don’t be intimidated. Easier said than done. If you are intimidated–don’t go it alone.

    That said, an attorney can be really expensive. But also, you don’t want to use one of those fly by night “pennies on the dollar” firms either. You just need an EA or CPA. Here’s a link to find an EA in your area: https://portal.naeacentral.org/webportal/buyersguide/professionalsearch.aspx

    You’re not looking for a whole debt deal (which can run anywhere from $2000 to $8000 dollars.) You just want someone to be with you to help you make the phone call. So maybe two hours worth of time–$200 – $300. I just want to get you into the right frame of mind price wise.

    Now–you might even want to try this on your own with a gutsy friend or relative. Use a speaker phone and have your moral support with you. It’s worth a try. If you’re not gettin what you want, back off and say, “I’m sorry. I’m going to have my representative contact you.” This buys you time to get professional help if you need it.

    Now, the first thing I would do is make sure you really don’t qualify for the first time homebuyer credit. That’s job one. Really. You wouldn’t have applied for the credit if you hadn’t bought a home. First time home? Were you just missing some documents? Just checking.

    Okay, so lets say you really owe the money. Have you ever had a tax problem before? If not, you should request an abatement of penalties. It might not fly, but worth asking for.

    From there, it’s all down to negotiating the installment agreement. You’re probably looking at a minimum payment of around $160 a month. Is that even possible for you? If yes, you’ll be okay. If no, you’ll have to prove you don’t have enough income.

    If you need help, get help. If you can go it alone, good for you. Do what works for you. Good luck.

  9. Dustin on Thu, 20th Jun 2013 8:22 pm
  10. I received an IRS bill in the mail stating I owe $6018 from a mistake on my 2011 taxes where I received a payout from my retirement fund. I don’t have the money to pay this off at all, and would like some advice on how to best handle the situation. Any advice would be great

  11. Jan Roberg on Tue, 2nd Jul 2013 9:24 pm
  12. Hi Dustin,
    So you received an IRS notice saying that you owe $6018. I’m guessing that the bill is probably right, but just to be on the safe side, I recommend having someone take a look at it. Even if it’s just going to the local H&R Block office for one of those second looks. Although IRS notices about owing for a retirment payment are often right–the IRS makes so many mistakes I hate to have you pay more than you owe.
    But let’s assume that’s the right number anyway. For $6018–the IRS would expect you to be able to pay that off within 72 months under their “streamlined payment agreement”. $6018 divided by 72 is $83.58. The IRS would expect you to pay at least $85 a month. Is that something you can handle? If yes, then go ahead and set up your agreement.
    If cash is tight and you really can’t muster up $85 a month, then you’ll want to get some help. You’ll need to fill out a form 433 and show the IRS bank statements and copies of bills and things like that.
    I highly recommend coughing up the $85 a month if you can do it.
    That said, paying more will pay off that debt faster, and the soone you unload it, the better off you are.

  13. Dana on Wed, 30th Oct 2013 8:59 pm
  14. Hi, Is it true that some times you can get a “one time” deal where they wipe your debt clean from IRS if you never work or file again after that..I hope that made sense…My Husband was working and paying on an old debt of like $4,500 to the IRS then he was injured and disabled at work and has since filed for SSI and its been almost 7 years now and the debt has gone up to like $6000 with fees cause he hasn’t paid since his injury and we are trying to figure out a way to clean this off hi record for good because he is no longer able to work and/or have a tax return..can you file bankruptcy on taxes?..uhg i’m just lost!..please help.

  15. Jan Roberg on Sat, 2nd Nov 2013 9:40 pm
  16. Hi Dana,
    Being lost when talking about the IRS is pretty normal.
    There is something called an offer in compromise–that’s the “pennies on the dollar” deal where you negotiate a payment of the outstanding tax bill. Usually, you don’t file an offer like that because companies that prepare the paperwork for you charge so much, you may as well just pay the IRS bill.
    That said, that might be something to consider, just don’t hire one of those $8,000 firms. Here’s a link to see if an offer is something to even think about. http://irs.treasury.gov/oic_pre_qualifier/
    I think people would save thousands of dollars using this tool before calling a tax company. It’s not perfect, but it’s a pretty good indicator of if you have a chance or not.

    Another thing that you might want to do is just wait it out. After 10 years, the debt drops off. There’s no way for your husband to pay the debt, so that might be the best option. You can call the IRS and they will give you the date the the debt becomes uncollectible.

    I’ve noticed that although the IRS will drop old debts, some states (like Missouri) won’t. So if you have any state debt, that may still hang over your head.

    You can file bankruptcy, but once again, the cost might be more than the debt. And, if you don’t complete the bankruptcy, the whole debt get’s added back and the amount of time you were in bankruptcy get’s added on to that 10 year term–so just be aware of that.

    I hope that helps a little anyway.

  17. brijesh on Mon, 2nd Dec 2013 2:21 pm
  18. hi,
    I have to pay irs 20,000.00,for back tax,is there any thing I can do to bring that down,its from 2001 to 2007..long story

  19. Jan Roberg on Sun, 8th Dec 2013 2:16 pm
  20. Hi Brijesh,
    So if you owe $20,000 from 2001 to 2007–I’m guessing that about half of that is penalties and interest. Ouch.

    Here are a few thoughts, I don’t know if any of them will help your case.

    1. Have you actually filed the returns yet? Often, people get IRS letters saying they owe money–and since you say it’s 2001 to 2007–that kind of sounds like you haven’t filed. Usually, I can reduce the amount owed by quite a bit just by filing the returns. One time, I helped a woman who was told she owed $15,000, but after I did the returns she had an $8,000 refund. You won’t qualify for any refunds (tax years are too old, any refund opportunity you had was missed) but at least you might reduce the debt.

    2. Maybe you’ve already filed and you really owe the full $20,000–you might want to see if you qualify for an offer in compromise. The IRS website has a “pre-qualifier” to help you determine if an offer in compromise is a possibility for you. Here’s the link to check that out: http://irs.treasury.gov/oic_pre_qualifier/

    3. If neither of those options are availalbe, it’s pretty hard to get any type of reduction. You may be able to abate some penalties–but given that you’ve got 7 years of taxes there, you’re unlikely to qualify for an abatement of any kind. Sorry.

    Good luck.

  21. sean j on Tue, 7th Jan 2014 2:49 pm
  22. I have a bill that was due ( now past due) the amount is 659.00. I don’t know how I owe this. I have never had to pay tax to the IRS. I have always received a refund. the letter I got stated that the amount I reported in 2012 was not correct. The amount was not correct I found after getting my w2 from last year in the mail today. I don’t understand how I could owe them… there is a brake down on the papers they sent me but the numbers just are not adding up. even with the new numbers It seems to me like I should be getting more money back… do I need to call some one?

  23. Jan Roberg on Tue, 7th Jan 2014 9:16 pm
  24. Hi Sean,
    I don’t have enough information about your case to give you any kind of an answer. If you think you don’t owe, you need to talk to someone.

    If the numbers don’t add up, you need to meet with someone who can make them work–and if they don’t work–help you get things fixed.

    But do contact the IRS. Let them know you’re working on it. Have them explain the numbers to you if nothing else. Don’t delay. You don’t want them to go and levy your bank account.

  25. Nikole on Thu, 12th Jun 2014 3:11 pm
  26. hello, i currently owe $6200 in taxes and i think ill owe a litte this year. im getting married in Sept and my fiance will owe child support for about 17000. How do we keep our taxes seperate? i know i wont see a return for a long while but how do i do it seperate and also a payment agreement ive been paying $50 a month and that s all i can afford. i had to fill out a formrecently askign expenses and income ect…is it likely they will accept? I plan on upping my wihtholding next year so my return will resolve the amount quicker. any suggestions?

  27. Ruben on Wed, 18th Jun 2014 3:13 pm
  28. I am not currently working, 58 years old and paying for my adult daughters mental health treatment the last two years which has dwindle down my retirement dollars to nearly nothing. Now I owe the IRS for all those withdraws bout $8500.00 just in 2013, is there any type of exemption or hardship negotiation that I could take advantage of to help me. My only form of payment would be to dig back into retirement to pay these fees and accumulate even more fees. On top of that my money is in a fixed annuity which takes fees right off the top. Obviously I never envisioned these circumstances but it has and I don’t know if someone can offer advice or service or the best place to turn.

  29. Jan Roberg on Wed, 18th Jun 2014 9:33 pm
  30. Hi Ruben,
    I have some ideas, but I don’t know if they can help you or not. I’ll tell you what I’ve got, it’s just that I’ve talked to other people with similar problems and there’s always some glitch that makes things not work. But here goes.

    Idea 1: You still have to pay tax on the $8500–but you might be able to reduce the penalty IF (and this is a big if) if the amount of money you pay for medical expenses is more than 10% of your AGI. Now, you probably can’t claim your adult daughter on your tax return as a dependent. (I’m guessing that she has a job and makes too much money–even if it’s only a little bit.) But, if the only thing that keeps you from claiming her as a dependent is that she makes too much money–then you can claim her medical expenses as a deduction.

    Now–even if you don’t itemize–if those medical expenses are over 10% of your AGI–then you can still use that amount to reduce the penalty that you’re getting hit with.

    Remember–Don’t just use your daughter’s medical expense, add in your expenses as well. Plus your wife’s and any other dependents (if you have a wife and dependents.)

    So that might help a little.

    Option 2: Maybe–once again, if you had retirement money in a 401(k) instead of an IRA, since you’re over 55–if you were no longer working for that company you could set up something where you can take equal distributions for 5 years. You’d want to talk to your financial advisor about that, but it’s an option for people with retirement money still in a 401(k) that they haven’t rolled over. (I just don’t think that works for you.)

    Option 3: this is sort of lame but–at least you can hold off the IRS for a while with a payment arrangement. I’m guessing that you probably owe the IRS close to $3000 all told on those taxes. You can set up an installment agreement with them to pay it off slowly. $3000 divided by 72 = $42. They’ll want at least $50 a month. You can do that until after you’re 59 and a half–that way you can take the money out to pay your IRS debt when you won’t get hit with the extra 10% penalty.

    I wish I had something better to offer you, but that’s about it. I’m sorry.

  31. Jan Roberg on Sun, 6th Jul 2014 8:45 am
  32. Hi Nikole,
    I think the best way to keep your taxes separated from your husband will be to use the married filing separate tax status. Since you both have debt that will be taken by the IRS, that keeps your tax refund money going to the right account.
    If you owe the IRS $6200, the $50 a month is less than what they will do in a “streamlined agreement.” That’s why they’re asking you for the financial information.
    If you bumped it up to $87, then I think they’d go for it. But, if you still owe more than that, then no.
    Make sure you get them to include whatever you owe this year in the agreement otherwise your agreement will be void once the tax records show you have another balance due.

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