Here are five good negotiating techniques to use with the IRS and others

 A grouping of words with the word TAXES in caps and red. All the words have something to do with taxes

When you are involved with a negotiation with the IRS or another party where it appears there may be significant differences of opinion, here are five good negotiating techniques to consider. Start off by determining your and their positions. What is your Best Alternative to a Negotiated Agreement (BATNA), what do you think is their BATNA? Next consider offering the first alternative position known as an anchor to set the stage. Listen actively without judgment to understand where they are coming from. Reframe the negative to a neutral or even into a positive when possible. Finally, seek advice from those with experience in these matters. Beware those that should have the expertise, and focus on those that know what they are talking about.


Initial computations


If you are in a negotiation with the IRS for example on examination with a single issue, focus on how to compute your position, their position, your Best Alternative to a Negotiated Agreement (BATNA) and three computations between your position and your BATNA. This means you have five computations coming into the negotiation for yourself. Then consider how the IRS came up with their computation for their position and make a best guess as to what may be the IRS BATNA. Make a computation for each of these too.

Now you have five computations based on your interests and two computations based on what you perceive as their interests before ever coming to the negotiating table. With new facts you can modify your computations quickly.

On examination the IRS needs to have a way to resolve the difference factually. That is why you need the computations. The IRS at least in theory cannot negotiate a percentage settlement on examination. Although in the field this in reality can happen in some situations. When this happens, the rapport is generally very good, and both sides can work to come up with a computation that works. That’s great when that happens, but these are generally not cases where conflict is really an issue.

If the case is unagreed on examination and proceeds to Appeals, Appeals may very well come up with a percentage adjustment known as a settlement based on the hazards of litigation. With your initial computations consider being the first to make a legitimate offer whether on examination or at Appeals with the IRS.


Anchors and fair offers


Begin the negotiation by having done your research on the other party’s participants and come to the table ready for and to initiate small talk. Even five minutes of small talk helps. Let the IRS go first.

Having done your own homework, be there to listen and then to educate judiciously later. When you educate judiciously later don’t lecture. Lead the other side through your process. Let them ask questions. Do not retaliate negatively if you are attacked. Instead stay above the line no matter what. Be there to help the other party to understand.

Then make an offer from your position. Being first helps.

Make the first offer. This is your anchor. The party that makes the first offer tends to set the stage towards working towards an agreement.

That is why it is called the anchor. Sometimes the other party may even accept the offer after having been listened to and educated judiciously. They may feel a need to partner with you. If not be prepared to move off your anchor and to offer a very fair alternative. These two steps are dependent on how the other party reacted to your anchor and whether and when you need to present your very fair alternative. This very fair alternative may very well be one of the three alternatives between your starting position and your BATNA that you brought to the negotiation. By listening actively this will help you determine how to proceed with the negotiation.


Listen actively without judgment


Demonstrate active listening. Listen like you have never listened before. Make no judgments. Ask questions to verify that you understand where they are coming from and why. Once a party has been listened to, they are more apt to listen to you. Listening may open up other avenues towards reaching an agreement. For example, working with the IRS your perspective may be the only issue is money. That certainly is an issue, but so is voluntary compliance going forward. So is treating each other with respect and being sensitive to various underlying interests.

For example, there may be legal issues, precedent setting concerns, other potential future issues, other issues on audit, previous cycle impacts not closed yet at Appeals and more. There can be a host of other issues.

By listening to the other side you may become aware of the implications of the IRS issue practice network, IRS looking for good litigation cases on this issue going forward, the need to close the case, what is involved with writing up an agreed case versus an unagreed case, the need to close out so many cases with a given activity code within the case year and others. The more you know, the more this can impact the negotiation. Look for ways to reframe a complex issue.


Reframe negative to a neutral or positive


Sometimes what appears to be very different positions with no help of coming together can be reshaped into a neutral or even a positive outcome. For example, with transfer pricing issues there are typically about a half dozen approaches that can be chosen on transfer pricing issues. An approach was taken by the taxpayer. Often another approach is taken by the IRS economists and international examiners. They typically do not want to move off that approach. Both sides think the approach they have taken is what should be used. They are at a stalemate.

By questioning the assumptions used in each approach it becomes clear that many assumptions went into to determining the transfer pricing issue.

The taxpayer also has the benefit of knowing what took place into the future, because the audit on more complex transfer pricing issues is nearly always behind contemporary time periods. This is an advantage that allows the taxpayer to provide themselves with computations on future years using the same methodology as the IRS. Might a change in the assumptions of the model used by the other side have more positive impacts in the outlying years? What changes might be needed and be acceptable with the other side’s perspective to possibly reach an agreement? It is worth exploring these assumptions and possibilities. If so, might not the taxpayer want to use the IRS methodology and work with the IRS to address assumptions based on the facts? Seek the input of others. Do your homework. Come prepared to address material differences.


Ask for advice


Finally, ask for advice. It is amazing how many firms with excellent reputations and high-priced talent using employees that seem to be real experts in their field may not have the expertise to really help you. They may reinforce your position and agree to work with you along these avenues, but closure is a long way off. Fees are significant. Is there an end in sight. 

Look for firms that not have the reputation, but rather the expertise to work towards closer at each level. 

These experts are focused not on fees, but on your interests and working towards closure. They are realists and provide very practical advice. Inquire beyond the surface. Explore those that under promise and over deliver. Find an expert in conflict resolution that understands your issues. When you find an expert like this, he or she will save you time, money, mental toil and provide closure.

These five points can go a long way towards helping your resolve issues.

About the author

Mike is a professional speaker, mediator/negotiator that helps clients resolve issues and be more productive as a conflict resolution expert with the IRS and others. Is conflict blocking your results? You may contact Mike directly at and at (651) 633-5311. Mike has written 11 books including, The Servant Manager, Business Valuations and the IRS, and Peaceful Resolutions that you may find helpful. [Michael Gregory, ASA, CVA, NSA, MBA, Qualified Mediator with the Minnesota Supreme Court]

About the author

Mike Gregory is a professional speaker, an author, and a mediator. You may contact Mike directly at 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]