Working with clients with issues at the IRS there are five steps to consider along the way. These are preparation, discussion, clarifying interests, negotiation, documentation of the agreement. These five elements are addressed in terms of an IRS negotiation. It is not always possible to have a wonderful negotiation, but these five steps can certainly increase the probability of success.
Preparation is key. For many clients de-escalation is essential. After all who wants to meet with the IRS. Knowing this, it is important to enter into a discussion with a positive professional attitude. Who will attend, where will the meeting place, and when will the meeting take place are all critical elements. By planning out these elements a stage can truly be set for building a relationship and listening to the IRS. Keep in mind the IRS has 13 divisions, each with its own culture. There are differences geographically too, but in the end it all comes down to the individual you are working with on your case.
Do a background check on the person on social media and use your connections to learn all you can about the parties you are meeting with at the IRS. Your goal is to develop a good working relationship, empathize with the IRS person and listen to understand his or her concerns. Once you have been listened to you are more receptive to listening. As such listen to what the concerns by the IRS agent. One division (Large Business and International Division - assets over $10 M) has spelled out how to work with taxpayers. I have found other divisions to be receptive to this 12-step process when the IRS asks for information. You may want to suggest this type of process regardless of the division you are working with at the IRS.
Determine who is going to say what and if at all possible set this up in an environment that will enhance a discussion for an effective negotiation.
At this stage each party typically presents their case as they see it. That is the facts are presented, applicable law is considered and the law is applied to the facts as preliminarily conclusions are reached. There is more to this than initially meets the eye. By establishing a common ground, it may be possible to overcome many problems that could otherwise derail the process. Ask open ended questions and be open minded, slow to judgment and be receptive to ideas offered by the IRS. It may be possible to develop creative ways to address concerns. By truly listening and clarifying interests it may be possible to circumvent areas that could give rise to a conflict.
A discussion requires seeking to understand the position, the goals, the interests, and feelings behind the interests of the parties. Discuss yours with your team before you enter the discussion. The IRS will likely come with an agenda, but don’t be afraid to come to the meeting with your own agenda to help foster a relationship and understand the interests of the IRS. It is suggested you have these in a priority order for yourself, but to be flexible to address these based on what the IRS raises as concerns. Clarification is needed in order to address misunderstandings.
Know the eight key considerations of a negotiation. It is very important that both sides work to understand the perspective of the other party to work towards common interest. For example, besides what many focus on and that is the bottom line, there are also interests in being professional, respectful, honest, straightforward, open, accepting and reliable with an emphasis on closure. The IRS agent is evaluated on closures. Understanding his or interests goes a long way towards a successful negotiation. Consider alternative approaches when presented with an alternative and don’t be afraid to think creatively with the agent. Compromising can bring positive alternatives that may benefit both parties in terms of computations and further year implications. Think strategically and consider longer term impacts knowing the audit is on a historical time period, but you have insights on the current year that may impact future years as well.
Documentation of an Agreement
The IRS is generally very good at documenting the final agreement relative to the tax computations and the appropriate interest and penalties if applicable. The IRS is also interested in improving voluntary compliance going forward. In that sense correcting something now for application in the future goes a long way in the negotiation and may be part of the documentation in the final agreement.
Contact Mike Gregory to speak to your group or consult with you, and check out his website, books and helpful content on the right side of his About page. Michael Gregory, ASA, CVA, MBA, NSA and a Qualified Mediator with the Minnesota Supreme Court, is an international speaker that helps others resolve conflict, negotiate winning solutions and inspire leaders by emphasizing collaboration. Mike worked at the IRS for 28 years and headed up business valuation nationally. Mike services clients business to IRS, business to business and within businesses. Mike has written 11 books including The Servant Manager, 203 tips from the best places to work in America and Peaceful Resolutions. Mike may be contacted directly at firstname.lastname@example.org and at (651) 633-5311.
About the author
Mike Gregory is a professional speaker, an author, and a mediator. You may contact Mike directly at email@example.com and at (651) 633-5311. Mike has written 12 books (and co-authored two others) including his latest book, The Collaboration Effect: Overcoming Your Conflicts, and The Servant Manager, Business Valuations and the IRS, and Peaceful Resolutions that you may find helpful. [Michael Gregory, ASA, CVA, MBA, Qualified Mediator with the Minnesota Supreme Court]