How to Do It and When You Shouldn’t

Millions of people around the nation will have to deal with the IRS at some point or another. This could be because of a late tax return or payment, a tax penalty, or some other issue getting in the way of tax compliance.

While talking to the IRS may seem daunting, you do have the right to represent yourself before the IRS. However, because that notion is pretty intimidating, many taxpayers decide to go with professional help — hiring a pro helps to ensure they’re taking the best steps for their situation and to have expert assistance when going up against the IRS.

Taxpayers who decide to go it alone may do so to save on professional fees, but certain scenarios warrant an expert. This post covers it all, including how to settle debt with the IRS and when you should turn to a trusted tax professional at Seattle Legal Services.

When Should You Negotiate with the IRS on Your Own?

When you have a tax issue, your first question may be, Can I negotiate with the IRS myself? The answer is yes, you do have that right. It’s particularly easy to solve certain types of issues on your own. For example, many taxpayers decide to request an extension or apply for a payment plan online on their own.

However, as issues become more complex, you may want additional factors. When deciding whether to represent yourself or hire a tax pro, consider these key factors which will impact your decision:

  • Cost: Hiring a professional does come with an additional cost, and you may already have expensive tax bills and penalties to worry about. Keep in mind, however, that their expertise is an investment into a positive outcome, or they help you reduce penalties or pursue settlements that end up covering their costs.
  • Severity of the issue: For small matters, it can be easier and faster to work with the IRS on your own, such as calling the agency to ask for penalty abatement if you have otherwise good tax compliance. When your tax bill continues to grow and you can’t pay, or the IRS is ramping up collection efforts and issuing liens or levies, that’s when you may decide to seek help.
  • Understanding tax law: The IRS provides extensive resources online, but it can still be a big challenge to fully understand tax laws and how they apply to your situation. A tax expert can explain everything to you clearly and accurately. They spend years studying how to represent taxpayers, they complete continuing education to keep their licenses active, and they have vast experience that is irreplaceable.
  • Your ability to resolve the matter: If you have an outstanding tax balance that you can now afford to pay in full, you may simply need to send in your payment to resolve your IRS issue. In this case, you may be able to do this quickly on your own. However, if you’re dealing with a complex issue or cannot afford to pay in full, you may want outside help.

Consider your unique circumstances when deciding whether to negotiate on your own or hire a professional. Every situation is different, but when you are uncertain about how to proceed, talking to someone may be the best call.

IRS Options for Tax Debt Resolution

If you’re considering working with the IRS on your own, it’s important to understand your different options, how to qualify, and how to apply. Here’s an overview of your settlement options when you can’t afford your tax bill and how to settle with the IRS by yourself:

Filing Extension

Worried that you won’t be able to file on time? Then, you can easily request an extension. You’ll then have until October 15 of the same tax year to file, and you won’t be hit with failure to file penalties. However, with this option, you still have to pay owed taxes by the April 15 deadline to avoid failure to pay penalties.

You can ask for an extension when you pay your taxes online simply by checking a box that you need a filing extension. You can also request an extension through the IRS Free File online system or by sending in Form 4868.

Payment Plans

If you owe back taxes, the most common form of relief is a payment plan, or installment agreement, wherein the IRS allows you to pay off your balance over time with monthly payments.

The direct debit option automatically transfers your payment from your account each month. If you owe less than $50,000, and you can get your debt paid off in 72 months, you can typically set up a payment plan without providing any financial details.

The partial payment installment agreement (PPIA) is a settlement option that could allow you to pay off your debt for less than you owe. You can qualify for a PPIA if you can’t afford to make payments to pay off the full balance you owe.

Usually, installment agreements are easy to apply for online and get set up on your own with the IRS. However, if you need more than six years, want to set up a partial payment agreement, or have issues with the underlying tax assessment, you should probably work with a professional.

Offer in Compromise

Another settlement option with the IRS is the offer in compromise. This arrangement applies to taxpayers who can’t afford their full tax bill and requires you to send in an application that shows your financial troubles. You will send in an offer that you can afford to pay, along with Form 433-A or 433-B, and an application fee of $205. If the IRS approves, you can settle your debt for the amount you offered.

Currently Not Collectible (CNC)

If you’re going through a temporary financial hardship, you can ask the IRS to put a pause on collections — known as CNC status. The agency will hold off on trying to collect what you owe until your situation improves, so keep in mind that CNC status is only temporary. However, you could get the debt forgiven if your account stays in this status until the statute of limitations for collections expires, which is 10 years.

To request CNC status, simply contact the IRS at 800-829-1040 to ask for a temporary delay in the collection process. The IRS may ask you to fill out a collection information statement using Form 433-F, Form 433-A, or Form 433-B to gather financial information from you.

Penalty Abatement

The IRS will agree to remove or reduce tax penalties in some cases. The first type of penalty abatement is for reasonable cause, when something beyond your control gets in the way of your ability to pay or file taxes on time. For example, if you went through a fire or natural disaster, had a serious illness, or lost an immediate family member, the IRS could approve your abatement request.

The other type is called first-time penalty abatement. This can only apply to penalties related to failure to file, failure to pay, or failure to deposit. To qualify, you must have good tax compliance history for the last three years and didn’t receive any IRS penalties during that time. Note that even if you apply for reasonable cause abatement, the IRS will first move forward with first-time abate instead if you qualify.

To request penalty abatement of either type, follow the instructions on your IRS notice that outlines the penalties. There will be a phone number on the letter where you can call in and request abatement. You can also send Form 843, Claim for Refund and Request for Abatement, instead of calling.

Innocent Spouse Relief

If you file jointly with your spouse, you may qualify for a program called innocent spouse relief. This type of relief removes your liability for your spouse’s tax bill if they made an error such as underreporting of their income that you were not aware of. Relief would only apply to your spouse’s income taxes, and you can’t request relief for your own income taxes, business taxes, or household employment taxes.

To request innocent spouse relief on your own, use Form 8857, Request for Innocent Spouse Relief.

Statute of Limitations Expiration

In some cases, your tax debt can be eliminated if the statute of limitations expires while your account is in CNC status or you are making payments through a PPIA. The IRS only has 10 years to collect what you owe and cannot take any collection actions once this deadline passes.

If you reach the deadline, your tax debt will effectively expire, and you won’t have to pay it. However, certain actions — such as applying for a payment plan — can stop the clock while the IRS considers your application.

Bankruptcy

Sometimes, but not always, you may be off the hook for tax debt if you declare bankruptcy. Income tax debt older than three years could be discharged if you’re in Chapter 7 bankruptcy, but for Chapter 13 bankruptcies, the IRS says you still must file all required tax returns, and pay all taxes as they come due; otherwise, your case could be dismissed.

Declaring bankruptcy should be a last resort since it doesn’t always make your tax debt situation better and causes other financial issues.

Challenges You May Run Into on Your Own

While certain more basic situations are pretty simple to handle on your own, others warrant outside help. For example, if you owe a very low balance because of an unfiled return, you may be able to quickly and easily get that paid off on your own and get back in good standing.

However, you may run into more challenges in certain complicated situations. Here are examples:

  • Offers in compromise: Even though an offer in compromise sounds appealing, the IRS has a low acceptance rate, especially for self-filed offers, since they may be incorrect or unconvincing. It’s estimated that just around 33% to 36% of offers in compromise are approved. The IRS generally won’t approve requests unless the offer is at least the reasonable collection potential, which is what the IRS believes it will be able to collect from you using involuntary means such as wage garnishment or asset seizure. Needless to say, these matters are complicated.
  • Many years of noncompliance: Missing a tax return or two is usually not too hard to overcome. But if you have years of unfiled returns stacking up, and large tax debts to match, it’s a much greater challenge to get back into good standing. A professional can help you understand the option that’s right for you and negotiate with the IRS on your behalf.
  • Complex tax laws: While you have the right to represent yourself to the IRS, you may not always know the laws and how they impact you during your case. The IRS may use a lot of jargon or reference tax law that you don’t understand. This is when the expertise of a tax professional is a must. You don’t want to risk taking any further steps that could make your situation worse.
  • Missing deadlines or details: The average taxpayer is not a tax expert. So, it’s easier for them to overlook key details in a case, such as deadlines for filings or payment, rights of the taxpayer, or even mistakes the IRS may make in the process. A tax attorney will handle communications and details for you so you can have peace of mind that everything is done properly, and you haven’t missed anything important.

When it comes to the IRS, even small mistakes can be costly. If you’re dealing with a more complex tax situation, don’t risk doing something wrong or not getting the approval you need. A tax expert is key to getting these matters resolved in your favor.

Your Trusted Tax Team at Seattle Legal Services

Tax issues of any kind can be alarming and stressful. The solution may be to simply make a payment or apply for an installment agreement, which you can usually take care of on your own. But it may take more effort and expertise to come to a final resolution in more complex tax cases, such as offers in compromise or dealing with a very large tax bill.

When you’re not sure how to negotiate IRS tax debt or are dealing with a complicated tax matter, work with the team at Seattle Legal Services. Our team of attorneys has seen it all, from unfiled tax returns to unpaid taxes to tax audits to criminal tax problems.

Our team will work with you to fully understand your tax issue and your history so we can advise you on the best way forward. We’ll clear up any questions you have about the process and will ensure your matter gets resolved as quickly as possible.

Contact Seattle Legal Services today to set up a consultation with a tax attorney.