How To Negotiate a Tax Debt Settlement With the IRS? 2025

When you have a tax debt that you cannot pay, you have options to address it. The Internal Revenue Service (IRS) is open to negotiations if you do not have the financial resources to pay your debt. A lawyer can tell you how to negotiate a tax debt settlement with the IRS. It’s important to first be aware of your options for mitigating and managing your debt and whether you qualify for a tax debt settlement prior to beginning negotiations.

Options for Debt Settlement With the IRS

An offer in compromise is most commonly associated with debt settlement because it involves settling your debt for less. However, this form of settlement is very hard to secure. Your income, assets, and expenses will determine what types of settlements you may be eligible for and which one is right for you.

There are several other types of debt settlement and mitigation that you may want to consider, such as:

1. Installment agreements. This agreement lets you negotiate a payment plan with the IRS if you can’t pay the full amount but have a steady income and can make regular payments. You have more time to pay off the entire debt and don’t need to worry about collection actions.
2. Penalty abatement. This option removes very specific penalties. If you have reasonable cause for the penalty, you could have that penalty and its interest waived. Health emergencies, natural disasters, and other issues could be considered reasonable causes. You may also be able to waive the penalties under first-time abatement.
3. Currently Not Collectible. Currently Not Collectible is a momentary delay in collecting your tax liability. If you’re experiencing temporary financial hardship and expect your circumstances to improve, this is a way to prevent most collection actions until you have the financial capability to pay off your entire debt.

The specifics of these options may be negotiable, such as the amount you pay in installments or how long collection is paused.

What Is an Offer in Compromise?

If you can secure an offer in compromise, you can resolve your entire tax liability for less than you owe. You must meet certain qualifications to apply for an offer in compromise. Even if you can apply, this does not mean your offer will be approved. In Fiscal Year 2023, the IRS only accepted 12,711 proposed offers in compromise out of 30,163.

The IRS will consider elements like your assets, income, expenses, and other specifics about your financial situation to determine if it will accept an offer in compromise.

An offer in compromise is more likely to be approved if you have attempted other methods of debt settlement, but they would cause you economic hardship. Negotiating an offer in compromise with the IRS can be complicated, but it can be very useful for your financial circumstances if it is approved.

How To Prepare for Effective Negotiation

Negotiating with the IRS on an offer in compromise or other form of debt settlement is often an important part of securing a fair outcome to your settlement. There are several things you should consider when preparing for negotiations:

• Understand your financial and tax circumstances. This includes an understanding of your expenses and assets, and knowing what you owe the IRS in taxes, penalties, and interest.
• Gather documentation. This includes proof of your expenses, income, assets, and relevant tax documents. This information is important to present in negotiations and useful to have on hand if more documentation is needed in the future.
• Know your options. It’s important that you understand what tax settlement options you qualify for.
• Ensure effective communication. You want to communicate respectfully with agents, respond quickly, and follow up on the debt settlement plan that they agree to.

There are Taxpayer Assistance Center Offices all over the state, including in Orlando at 201 S. Orange Avenue, Suite 1118, and in Tampa at 2848 W. Columbus Drive.

The Importance of Professional Help for Tax Debt Negotiation

All of this preparation is easier with a tax professional. Negotiating your tax liability with the IRS is a complex and often overwhelming process. The most effective way to negotiate well is to work with a skilled tax attorney who can handle the process for you. A tax attorney knows state and federal tax codes and how they apply to you and has substantial experience negotiating with the IRS on various debt settlement options.

FAQs About Negotiating a Tax Debt Settlement With the IRS

Can I Negotiate a Tax Settlement With the IRS?

Yes, you may be eligible to negotiate a tax settlement with the IRS if you are unable to pay your tax liability. You may not have the resources to pay the debt, or you may put yourself in financial hardship by paying it. When this is the case, there are other options for resolving your debt, such as payment plans, pausing the collection of your debt, or settling for a lower amount. Not everyone can negotiate their tax liability.

What Percentage of Debt Will the IRS Settle for?

The IRS will usually settle for what you can pay. When you make an offer in compromise with the IRS, you make a beginning offer. The offer that the IRS considers reasonable will depend on your situation. The IRS will consider your assets, income, and expenses to determine how much of your debt you can reasonably pay. Working with a tax debt settlement attorney can help you assess these factors and determine a reasonable amount for the offer.

Does the IRS Forgive Tax Debt?

Yes, the IRS forgives tax debt, but not for all taxpayers. Tax debt forgiveness is available for individuals who do not have the financial ability to pay off their debt. There are several ways that individuals can address their debt, including penalty abatement and offers in compromise. An offer in compromise can eliminate your debt for a lower sum, but these are much more difficult to secure.

Does the IRS Offer One-Time Forgiveness?

The IRS offers first-time penalty abatement, which is also called one-time tax forgiveness. Through this process, you can waive the cost of specific penalties and interest that you accrued as long as you meet specific requirements. You must have a good history of tax compliance, including having filed the same type of required return for the past three years and not having any penalties for the same time period, except for penalties removed for reasonable cause.

TaxSmith, LLC: Settling Your Tax Debt

The professional team at TaxSmith, LLC can assess your financial circumstances, determine what options are available to you for settling your debt, and negotiate for you with the IRS. Contact our firm today.