How to Negotiate a Settlement With the IRS

Older couple negotiating with auditor.

How to Negotiate a Settlement With the IRS. Negotiation is an art, not a science. In this article I will show you the language that you need to speak-when trying to reduce the amount of tax-the IRS auditor says you must pay.

Step 1

If you are being audited and the auditor has determined that you owe the IRS additional taxes, the first thing you should ask for in the negotiation process is the reduction 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.

Step 2

If you are willing to agree to at least some of the adjustments that have been proposed, then the auditor will (or at least should) recognize that you are a reasonable person. Unwillingness to do this will probably indicate to the auditor that you are not a rational person, which could mean that your audit should be expanded.

Step 3

When you ask for any kind of reduction, never speak in terms of dollars. Use the terms "adjustments" or "disallownances" instead. These are terms the auditor is familiar with and understands. If you can show that any records you have match what you deducted on your return, then requesting only a partial reduction of your deductions instead of the proposed amount will sound much more reasonable to the auditor.

Step 4

Be absolutely certain to keep very detailed notes of the results of your negotiations with the IRS. It will take several months and approvals from several levels of the IRS before your settlement is finalized. If the written settlement amount that you receive in the mail differs from what you verbally agreed upon, call your auditor to see why. He or she may be able to make a correction on your behalf.