Over my many years representing taxpayers who are in collections, I have negotiated hundreds of IRS and State Installment Agreements. During this time, I have developed a list of important information I need from my clients in order to negotiate the best possible monthly payments for my clients’ unique conditions. Here, I will share my 5 keys to success when preparing to negotiate an installment agreement—what you need to know ahead of time in order to get the best result.
1. Know How Much You Owe
Depending on how much you owe in back taxes, an Installment Agreement negotiation can be relatively easy and painless. An individual debt may qualify for a Streamlined Installment Agreement with the IRS, or a business could qualify for a Guaranteed Installment Agreement, neither of which require a large amount of financial disclosure or verification. If you can afford the monthly payments for one of these Installment Agreements, they also come with benefits surrounding lien filings and withdrawals, and follow ups and re-negotiations with the authorities.
If you know how much you owe in taxes, it probably also means that you have filed all of your tax returns. Filing compliance is a requirement for any Installment Agreement with any taxing authority, partially because they also need to know how much you owe in order to determine the acceptable payment parameters.
2. Know What You Can Afford to Pay Per Month
Few things will complicate an Installment Agreement negotiation faster than not knowing how much you can afford to pay. The taxing authorities are, to some extent, open to your suggestions, and proposing your desired monthly payment is an effective way to start them thinking about what you can afford as opposed to how much you owe. If you can tell them how much you can afford, and why that payment is the best way for them to collect the debt, the authorities will start off with a better idea of your financial condition. In some cases, by articulating a proposal in my first contact with a tax collection officer, I am able to reframe the entire conversation, and achieve much better results from my clients.
Another benefit of being able to propose a specific monthly payment to the authorities is it can protect you from enforced collection of the debt, such as levies and garnishments. Most collectors group delinquent taxpayers into one of two categories: “Can’t pay,” or “Won’t pay.” “Can’t pay” are those taxpayers who know they owe a debt, but are unable to easily and quickly resolve the debt due to their financial circumstances. “Won’t pay” are taxpayers who dispute that they even owe the tax or are absolutely unwilling to make any progress toward resolving the debt.
Getting a collector to look at you as a “Can’t pay” generates more flexibility, as they tend to feel like they are working with you instead of against you. A collector who feels like she is working with you is much less likely to decide that the only way to collect is to take money from you by enforcement. By the way, “Won’t pay” taxpayers leave the taxing authorities with little choice other than to start zapping bank accounts, garnishing wages, and seizing non-exempt assets.
3. Develop a Monthly Budget
As with any financial situation, your monthly budget is very important to proving your ability to pay. You wouldn’t buy a car or a house without making sure it would fit within your budget, and most lenders require at least a cursory income and expense analysis to determine whether you will be able to honor the loan terms. The same holds true for back taxes. A realistic monthly budget also allows you some flexibility when the authorities decline to accept your initial proposal. You already know how much you can afford, and how much flexibility you have on the monthly payment you can agree to.
Knowing your budget can help in the heat of negotiations. Tax collectors often throw curve balls at taxpayers during negotiations in an attempt to take the upper-hand and extract more of a monthly payment. If you know your budget, you are less likely to accept a collector’s interpretation of your income and expense because you know exactly what you need to pay to meet your necessary living expenses. And make no mistake about it, they want to squeeze the most out of you that they possibly can.
4. Be Aware of Allowable Standards for Living Expenses
The IRS publishes National Standards for Allowable Living Expenses, and Local Standards for both Housing/Utilities and Transportation on its website, and uses those standards in determining what a delinquent taxpayer can afford to pay toward their debt. Most states either piggyback on the IRS standards, or have a set of standards of their own.
The allowable standards do not allow for a lavish lifestyle, so it is important to account for them in your budgeting and deciding how much you can afford to pay per month. The authorities will try to reduce your actual monthly expenses to the allowable standards in an effort to increase the acceptable monthly payment amount. Knowing the allowable standards ahead of time can help immensely in anticipating the authorities’ response to your proposal.
It is possible to convince the authorities to allow variances to the allowable standards if you know how to identify which battles to fight and how to go about fighting them. For example, if you can craft a strong argument to the effect that you have no other option than to pay a monthly expense that exceeds the standards, you just might prevail.
Winning mini-battles like this can have a dramatic effect on the ability for a household to make ends meet during the repayment term of the Installment Agreement, and can easily make the difference between “getting by OK” and “seriously struggling to put food on the table.” This is one of the reasons why many people choose to have a tax relief attorney negotiate on their behalf—especially with larger dollar tax debts.
5. Know Where to Find Help
Even if you go into a negotiation fully prepared, there is risk that you may encounter an unreasonable and/or overly aggressive tax collector. In such a situation, you need to know your rights as well as what recourses are available to you. That way, you can at least be comfortable that the collector assigned to your case is not the final word in the acceptance of an Installment Agreement. Plus, knowing who to talk to or how to file an appeal when you reach an impasse can show the collector that you are serious about your proposal and that you know how to go over their heads.
Every tax collector has a supervisor. In almost any negotiation, you have a right to discuss your situation with that supervisor. It is an unfortunate fact that some collectors become too personally invested in collecting from a taxpayer or pushing all of their cases to pay more than they can afford. The supervisor is often aware of an overly aggressive collector, which can play in your favor (though you may be working with a particular collection office where the culture is such that everyone is overly aggressive, including the supervisor). I have gotten major concessions from supervisors when collectors dug their heels in. Sometimes, just the threat of talking to a supervisor will loosen up the collector.
In addition to a supervisor, all taxing authorities have an appeals process. In most cases, filing an appeal will remove your case from the purview of the collector and allow you to discuss your issues with an appeals officer who has no prior knowledge of, or involvement with, your case. I find that appeals officers are generally less personally invested in a collections case and will frequently be more receptive to arguments about how much a taxpayer can truly afford to pay.
Similar to appeals, the IRS and many states also have a taxpayer advocate service or something similar. This is an entire department whose sole purpose is to address and resolve disputes between taxpayers and tax collectors. Although, in my experience, taxpayer advocate representatives tend not to be very effective negotiators, they frequently do have the ability to navigate back-channels within the taxing administration, and work wonders in resolving a problem. At the very least, a taxpayer advocate will be able to put you in touch with a supervisor or help you file an appeal.
Finally, the best course of action may be to seek assistance from a tax relief attorney who can help you with each of the five suggestions above, prepare a compelling proposal on your behalf, guide you through the bureaucracy, defend your rights, advocate on your behalf, and maximize your chances of reaching a desirable outcome. Keep in mind how high the stakes really are with regard to getting a monthly payment that is affordable. If the payment isn’t affordable, the taxpayer will have a difficult or impossible time making ends meet and will be at high risk of default. Default comes with its own set of problems and often puts the taxpayer in a worse situation than they were in prior to entering into the Installment Agreement.
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