A question that is often asked is, “If I can pay the original tax liability, can I negotiate with the IRS to forgive interest and penalties?” Like all things emanating from the government, the answer is complicated. You may have options and you should talk with your tax attorney. The earlier in the process you begin, the more options you have. Once the IRS begins the collection process, your options may become increasingly limited. The authority for the IRS to settle debt is done through an offer in compromise. In an offer in compromise, the IRS investigates your ability to pay back the debt over a span of 10 years (this is the statute of limitations on collection). The IRS will evaluate your assets, your income, and your expenses, and arrive at a number it believes you should be able to repay. For some, this may be lower than your total tax liability. For example, if you owe $50,000 and the IRS believes you will only be able to pay back $20,000, then $20,000 is the number, and the IRS will work with you to develop a payment plan. If you are worth $60,000 then there will be no compromise since the IRS will believe it can collect the full amount. There may, in fact, be a basis for interest and penalties to be forgiven by the IRS, but it likely will not be part of the collection processes.
One of the frustrating things about the IRS is that it is a government enterprise and unlike private enterprises, the IRS employees are not governed by a sense “reasonableness” or “common sense”. They are governed exclusively by a set of rules and, while the rules allow for some flexibility, adherence to the rules is absolute for IRS officers. For more information about negotiating with the IRS talk to your tax attorney. Tax laws and internal guidelines must be followed carefully. It may seem unfair and highly arbitrary but this is the nature of the IRS. However, wherever the rules allow for leeway on the part of the officers, it behooves the taxpayer to raise issues respectfully and honestly with the IRS officers. When negotiating with the IRS be respectful and as forthright as humanly possible. It’s your job to build a case of credibility. Being aggressive or intimidating is likely to end poorly for you. It’s important to know the limits of IRS action and inaction, and having a professional advocate for you is an exceedingly good idea.
If you have any questions call your tax attorney at 913-735-4829