Four Tips on How to Negotiate with the IRS

Negotiating with the IRS is a power negotiation. By that I mean the IRS auditor has the power and you have a need to lessen your pain. You must get the IRS agent or auditor motivated to work with you. The benefit you have is that you are negotiating for yourself and from your wallet. The person you are dealing with is doing it as a job with nothing on the line but the wrath or praise of their boss and possible some form of incentive. So the negotiation means more to you than to the IRS agent.

There are two givens when dealing with the IRS. They will typically compromise to reach an accord and the easiest concessions to get are a waiver or reduction of the penalties and interest.

If you want to negotiate with the IRS consider these four tips:

Meet with the auditor and try to establish that you or your tax preparer made an honest mistake. This point is important as you want to entice the auditor to want to help you. Once you have established the amount of taxes you actually owe, your initial proposal should include the following:

1. Seek a waiver of interest and/or penalties. This is a relatively easy point for the auditor to give in to, especially if he or she believes that you or your preparer made an honest mistake.

2. Agree to some of the auditor's adjustments. This compromising attitude helps the auditor recognize that you are a reasonable person trying to do what is right within your means to do so.

3. Bring volumes of receipts, records and a lot of time. An auditor faced with spending hours going through receipts or accepting a reasonable settlement proposal is likely to consider his time worth more than trying to eke out a few more dollars from you.

4. Take notes. The IRS will send you a written settlement amount in the mail. Use your notes to make sure the amount agrees with what you verbally accepted. If it doesn't you will want to call your auditor and ask he or she to make a correction on your behalf.

When faced with a powerful adversary in any negotiation your first goal is to gain some power. In the case of negotiating with the IRS the best way to garner power is to convince the IRS agent or auditor to help you and bring money to the table. Their motivation is to a) get cash and b) close the case. That is that they are measured on performance-wise and those two elements give you some power.