How to Negotiate with the IRS: Proven Strategies to Reduce Your Client's Tax Debt

As a CPA, financial advisor, or attorney, you’ve likely seen it before.

One of your clients hasn't paid their taxes and spent the last two years avoiding the IRS.

Now things are getting serious.

You’ve got plenty of tools to help your clients in most areas but  tax debt is something different.

You don’t have the expertise to help with this but the reality is, you have NO interest in dealing with IRS collections yourself.

You don’t have to be the one negotiating with the IRS, but understanding the key strategies can make all the difference when you refer your clients to the right expert.

Today, we’ll break down three common methods to reduce your clients’ tax debt and protect them from the IRS: Offers in Compromise, Installment Agreements, and Penalty Abatement— so you know what’s possible for your clients who are counting on your guidance.

Why Understanding IRS Tax Debt Resolution Strategies Should Matter to You

You’re your clients' advisor, their go-to for guidance.

Even if you don't handle tax negotiations yourself, you can be the hero that points them in the right direction.

When your clients know you’ve got their back, it builds trust.

When you can connect them with the right help, it builds loyalty.

And when they get a solution, they’ll remember you as the professional who came through when they needed it most, even though t wasn't your area of expertise.

1. Offer in Compromise: Settling for Less

Let’s start with the crown jewel of IRS negotiation strategies: the Offer in Compromise (OIC) which is also the strategy attached to the most fraudulent promises from “tax resolution” companies across the country.

The idea of settling tax debt for less than the full amount owed sounds too good to be true…and much of the time it is!

But it’s a legitimate option for certain taxpayers and the results are amazing.

Here's the catch: it’s very difficult to get an OIC approved.

Optima Tax and the rest of the garbage “tax resolution” companies you hear on the radio make it seem like EVERYONE qualifies.

The reality is that most applications are rejected…upwards of 60%.

When an Offer comes across its desk, the IRS offer in compromise unit scrutinizes every detail in light of the specific formula used to determine approvals.

It’s not some willy-nilly back of the napkin negotiation like when you’re buying a new car.

The IRS takes into account the taxpayer’s income, expenses, assets, and future earning potential.

If they can prove they don’t have the monthly disposable income or the equity in assets to pay what they owe, the Offer in Compromise is absolutely an option, and when they’re successful, it changes lives.

The key is knowing how to build a compelling case—something that often requires the expertise of a tax professional who knows what they’re doing.

2. Installment Agreements: When Paying in Full Isn’t an Option

Not everyone qualifies for an OIC, and that’s where other IRS resolutions like Installment Agreements come in.

This option is ideal for clients who can afford to make payments over time but can’t pay the full amount upfront.

The general concept is simple but there are multiple types of Installment Agreements.

A strategical analysis of the options is crucial..

Pay special attention to the "Partial Pay Installment Agreement," which not only saves the taxpayer from having to pay the total amount up front and make monthly payments, but the taxpayer won’t have to pay off their total debt.

The PPIA provides an unbelievable opportunity for taxpayers to reduce their total debt.

An Installment Agreement not only allows the taxpayer to make payments over time but also stops the IRS from enforcing collections like wage garnishments or levies.

The key is to negotiate a payment amount that your client can realistically handle each month—because missing payments can send them right back to square one.

It’s also important to note though that interest and penalties continue to accrue during an Installment Agreement which is why it’s critical to have a well thought out strategy from the start.

3. Penalty Abatement: Reducing the IRS's Obscene Extra Charges

The IRS adds huge penalties and interest on top of the tax debt—making a bad situation so much worse, which is why you HAVE to take abate penalties when it’s available.

First and foremost, be aware of the First Time Penalty Abatement.

It allows taxpayers to abate penalties when they have not had tax debt or penalties within the previous three years.

Penalty Abatement is also granted when the taxpayer can show “reasonable cause” for failing to pay or file on time.

This may include anything from a serious illness to a natural disaster or even a reliance on bad tax advice from a previous accountant.

Be aware, however, that it’s not easy to convince the IRS that your reason for filing or paying late was reasonable.

TL;DR: Key Strategies for IRS Negotiation

• Offer in Compromise: Settle tax debt for less than the full amount if the client qualifies, but approval requires a well-prepared case and few qualify.

• Installment Agreements: Pay off tax debt over time with monthly payments, but interest and penalties still accrue. A Partial Pay Installment Agreement can shave off a significant portion of what’s owed.

• Penalty Abatement: Remove or reduce penalties if the client’s previous three years are clean or if you can prove a reasonable cause for falling behind on payments or filings.

Question for You

Professionals, what questions do you have about tax debt reduction strategies for your clients?

Drop a comment below—

Let’s talk about the best ways to guide our tax debt clients toward a solution.