Negotiating Back Taxes Down?
December 16, 2013 5:58 PM   Subscribe

So, in a nutshell here's the situation: I owe a significant amount of back taxes, and have the ability to pay - but want to see if it's possible to negotiate a lesser amount.

I was self-employed and did not file taxes for several years. Bad, yes, I know - no need to point that out in the comments! Have worked with an accountant to prepare my filings and have the tax bill in hand. With penalties, looking at about $70,000 in back taxes. I knew I'd owe a fair chunk but this is higher than I expected by about $20K.

Now, I actually have enough saved to pay this - but, I hear all the time about tax negotiations and paying less than actual money owed.

Is it worth talking to a tax lawyer to try to lower the amount? Has anyone done this and have any recommendations? Alternately, has anyone tried this and found it to be a waste of time?
posted by anonymous to Work & Money (6 answers total) 1 user marked this as a favorite
Unlike credit cards (for example), you aren't really in a good position for negotiations because the IRS can do quite a bit to recover what is owed. If it's been several years, you are probably already getting letters. The next steps for them are things like garnishing your wages, levies, etc. And the cost you owe continues to increase.

So with a credit card, you can say "take this or take nothing" and maybe they aren't up for fighting you for it. That just isn't the case with the IRS -- they have many more options available to them to get the money you owe.
posted by Houstonian at 6:18 PM on December 16, 2013

Definitely speak with a lawyer. There are tax lawyers who specialize in getting back taxes lowered, that's the kind you should be looking for. Not the TV ad ones, a private one. I have seen peoples back taxes lowered quite a bit going this route.
posted by donaken at 6:22 PM on December 16, 2013

It won't cost you anything to get on the horn with the IRS and ask if you can make a lump-sum payment in exchange for them removing penalties. Express contrition, the desire to get all caught up, and that in the future you'll make your quarterlies like a good tax paying citizen (if you are still self-employed). It can't hurt to try, right?
posted by nacho fries at 6:23 PM on December 16, 2013

I have (via lawyer) successfully negotiated a lower payment on the penalties and interest, but not on the taxes themselves.

IME you are more likely to be able to negotiate with federal vs state tax agencies.
posted by elizardbits at 6:36 PM on December 16, 2013


I had one pro bono tax case where I negotiated a large debt down to a small debt by making what is known as an offer in compromise. As part of the process, my client was required to disclose income, assets, expenses, household member's income, etc. so that the government had a full picture of their financial status. Based on this, they essentially ran a formula--which you can run yourself on the website--to determine whether they would accept the lower amount.

Based on my limited experience, if you have the money to pay (and the IRS knows you have it) I doubt that they will accept less. When you have the money the IRS has no incentive to settle for less because they can just take it from you by seizing accounts, garnishing wages, etc.

That being said, it doesn't hurt to call and ask or get a free consultation with a tax attorney. I don't think it's worth paying anyone to help you in this case.

Make sure not to lie to the IRS, because it will not go over well.
posted by unreasonable at 6:39 PM on December 16, 2013 [7 favorites]

You may be able to negotiate the interest and penalties by paying in a lump sum, I wouldn't get my hopes up though. You will not be able to negotiate the tax liability. The IRS has an offer in compromise program, as unreasonable mentioned. However, if you have the money, or can reasonably be expected to have it in the future, you will not qualify. The program is really only for people who have no assets and little future earning capacity (disabled, elderly, serious illness, etc.). The only other option is an installment agreement, which may be beneficial in your case, if you can put the $70K to work elsewhere at a higher rate of return than the interest rate on the tax debt.

Don't do any of the "settle your tax debts" companies. They are scams. You could find an attorney/CPA/EA who does this stuff, but it really won't be worth it. Anyone who says they can negotiate it down because they "know a guy" or just have to "smooth talk" the IRS is bullshitting you. The agents in charge of these issues have very strict and set rules and procedures they have to follow; sweet-talking won't help.

Also, make sure you can meet your current tax obligations (i.e. 2013TY), before paying off the old ones, so that you don't continue this cycle (the penalties are the highest in the first 5 months, so it is more economical to pay current liability than past). Remember - an extension to file is not an extension to pay.

If any of the tax debts are employment taxes pay them ASAP -- they will move heaven and earth (i.e. shut your business down and seize any and all personal assets) to meet those liabilities.

If applicable, make sure you've dealt with your state and local tax obligations as well.
posted by melissasaurus at 7:28 AM on December 17, 2013 [1 favorite]

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