How to negotiate a tax payment plan

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You've checked all the numbers, and the IRS is right: You owe the government more money. A lot more money. Not only back taxes but interest and penalties, too.

Here's what to do:

If you're getting a bill because you failed to file a 1040 for a particular year or years, file immediately. Then make an appointment with an IRS representative and ask whether the government will waive the delinquency fee.

Now, you're ready to negotiate a repayment plan.

The first thing is to look at how much of the bill you can cover by tapping your savings, securing a home equity loan or borrowing money from family or friends.

Even if you can't pay the entire bill at once, the more you put down, the less you'll have to pay in interest and penalties. Plus, it shows the IRS that you're ready and willing to work out your problems.

You can ask for an Installment Agreement that allows you to repay the rest though regular monthly payments. If you owe less than $25,000, you can set up a payment plan online or fill out an Installment Agreement Request (Form 9465).

At this point, the IRS might also require you to fill out a Collection Information Statement (Form 433-F), which is the IRS' way of determining how much you can afford to pay a month.

You might not be happy with how much the IRS says you can afford because it will consider everything, even how much you could save by selling your house and moving to an apartment where the rent is less than your mortgage payment. Prepare to live on a tight budget.

If the IRS determines that you can't possibly repay the entire amount, whether it's because the amount is too large or you're disabled, the next step is an Offer in Compromise (Form 656).

This is where you ask the IRS to forgive some of your debt and accept less than you actually owe. If your compromise is accepted, you'll have to:

Fail to do any of those things, and the IRS can -- and almost certainly will -- cancel the deal and come after you for the full amount.

The IRS also might offer you a temporary delay. That means you've contacted the government and it has determined that you can't pay back the debt but might be able to do so in the future.

While the IRS won't come after you for the money, it will keep charging you penalties and interest, and it also can file tax liens.

If you're still up to your ears in forms and can't afford to hire a tax attorney, don't succumb to one of those tax relief companies that advertise on late-night TV and talk radio. Many will ask for cash up front and never resolve your tax bill -- when you could have been taking that fee and applying it directly to the tax bill.

If you're even considering one of these companies, do due diligence and check to see how its rated by the Better Business Bureau.

That will help you spot the worst offenders, such as American Tax Relief, which has 150 complaints filed against it, according to the Better Business Bureau of Connecticut.

You're better off contacting the IRS' Taxpayer Advocacy Service. It's an independent group within the IRS created to work with you to sort through your debt and figure out the best way to pay it.

You can also use this service if you can't afford independent counsel or if you've filed a request with the IRS and haven't heard back within 30 days or by the date the IRS told you it would reach a decision.