IRS Negotiation: The First Step

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Posted by: Gary Massey Comments: 0

IRS negotiation is a fundamental part of our tax practice. Typically, negotiation is required when the taxpayer owes taxes, penalties and interest to the IRS that they cannot afford to pay. This problem can be for one year or for multiple years. The debt may result from personal income taxes, business income taxes or unpaid payroll taxes.

Negotiation begins with an evaluation of the resolution options that are available to the taxpayer. Resolution options include an offer in compromise, installment agreement or uncollectible status. Each option has its owns advantages and disadvantages. And each has its own special rules for qualification.

However, it is critical to know that the IRS will not begin the negotiation process if the taxpayer is not complying with the tax rules. Tax compliance is the first step for IRS negotiation.

IRS Negotiation Requires Tax Compliance

Tax compliance is a prerequisite to IRS negotiation. A taxpayer will not qualify for an offer in compromise or an installment agreement unless they are tax compliant.

Tax compliance consists of two parts:

  1. All required tax returns have been filed. (Tax returns under a valid extension are considered to be timely.)
  2. Current tax period payments are being made

Current tax period payments include:

  1. Sufficient payroll tax withholding for employees
  2. Quarterly estimated tax payments for contractors, the self-employed and business owners.
  3. Payroll tax deposits for employers

IRS negotiation of back tax debts cannot begin until the taxpayer is meeting all of the above requirements.

How Many Years of Back Tax Returns are Required to be Tax Compliant?

The IRS requires the filing of the previous six years of returns in order for negotiations to start.

Taxpayer have the option to file more than six years of returns, which is advantageous for years with net operating losses (NOLs) or capital losses. While refunds will not be allowed for older years, losses can be carried forward to offset future income.

Substitute for Return

A Substitute for Return is considered a filed return for purposes of the six year filing requirement. This refers to a return prepared by the IRS for taxpayers who did not file their own returns.

A Substitute for Return usually overstates the tax because it is prepared with unfavorable tax attributes and without deductions. Nevertheless, the taxpayer is not required to go back and file an actual tax return to replace the Substitute for Return in order to be tax compliant. But they may do so if they wish to take advantage of a better tax status or deductions.


If you or someone you know has an issue with the IRS, please contact us at (678) 235-5460 or (773) 828-0551. Or you can reach us by email at Our services include tax return preparation, tax planning, IRS negotiation, past due returns, audits, offers in compromise, installment agreements, innocent spouse relief, accounting and bookkeeping. We make the tax nightmare go away.

Massey and Company CPA is a boutique accounting firm located in Atlanta and Chicago providing tax and accounting services to small businesses and individuals in Georgia, Illinois and in states throughout the country.

Learn about us at Massey and Company CPA.

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