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.

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

Jimmy Dunn on Wed, 17th Oct 2012 9:48 am


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

Admin Roberg on Wed, 17th Oct 2012 8:31 pm


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.

Kimberly on Thu, 7th Mar 2013 9:56 am


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

Jan Roberg on Sun, 10th Mar 2013 4:53 pm


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.

Tell me what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

Name (required)

Email Address (required)

Website

Speak your mind

CAPTCHA Code *