How Can You Use BATNA: Even with the IRS?

A one way sign in black and white pointing right and a one way sign in color pointing left

BATNA is the Best Alternative To a Negotiated Agreement. So, what is that? If you don’t reach at least this minimum in a negotiation you need to walk away. But what are some things you need to think about with BATNA, before deciding on what your BATNA is? That is the focus on this article.

If you follow this blog, you have seen commentary on this topic before in various blogs. However, today, I want to offer a different twist. This twist focuses on exploring your BATNA and how to look at it a bit differently.

Ways to Explore Your BATNA

Say the issue is about price. You know what price you want to offer to the other party. You know that that the other party is going to counter with a different price. You also know that if you do not receive at least a certain minimum price you are prepared to walk away from the deal.

 

That minimum price when you are willing to walk away is your BATNA.

 

You have done your homework and you have decided that you will agree to this contract if the price is at this minimum, but any less than that and you need to move on.

Say you are offering a price of $100 and they counter with $50. You know it costs you $60 to produce and supply the item. Clearly $50 won’t make it based on price alone. At $60 you make no profit. What considerations may you be able to make?

Perhaps there could be a volume discount? That is, if they buy at least X from you, you may be willing to drop the price to $90 and if they 2X from you, you may be willing to lower the price to $80.

There may also be a number of additional concerns.

 

For example, quality, service, future work, timing, demand, industry standards, skill level, experience, risk and reputation are areas for consideration.

 

Might it be possible to review your BATNA not only by price, but is this someone you really want to work with going forward? If so, you may be willing to cut them a much better deal this time. Think outside the box and consider other ramifications besides price.

Considerations of the Other Side’s BATNA

Typically, we do consider our BATNA, but not much thought is given to their BATNA. Consider discussing this with them. Feel out where they are coming from. Why are they approaching this the way they are? Are they considering additional alternatives, are there other reasons why they are taking the position they are?

 

Ask open ended questions. Ask what are their concerns? Develop a relationship and truly listen.

 

Are there other mitigating factors that you had not foreseen? Consider the same concerns you brainstormed from above. Perhaps considering those same factors may give you a clue. Exploring these factors will at least help you consider where the other party may be coming from in the negotiation.

How You Can Help Each Other with BATNA?

Once you have considered your BATNA and their BATNA as part of a negotiation, what are ways in which you may be able to help each other. Explore ways to uncover interests.

How About with the IRS?

Most people do not think of the IRS as a group that has interests other than the bottom line. Don’t get me wrong. The IRS is interested in the bottom line. However, the IRS is also interested in improving voluntary compliance and in conducting a professional audit.

Business valuers whose clients come under audit and are willing to work with the IRS understand this. Business valuers know that many assumptions went into the development of their conclusion of value. No two individuals will end up with the same conclusions of value. At the same time, an unreasonable request needs to be addressed assertively, and yet a good negotiator knows there are multiple ways to address concerns raised by the IRS. So, what should the client do?

 

It is important to realize when working with the other party, that the other party may have various personal and professional interests as well.

 

 Developing a connecting relationship, actively listening, and then judiciously educating go a long way towards negotiating an acceptable resolution. Relationship building and trust go a long way towards resolving an issue with the IRS.

This example with the IRS is offered, because many times the taxpayer tends to focus only on the bottom line and does not apply the basic principles offered in this commentary. Think about how from the very beginning of the audit it is important to find ways to connect with the IRS auditors and ensure that the IRS is indeed following the policies and procedures they should be following.

 

With significantly reduced budgets and requirements for increased productivity by Congress and the Administration, make sure you know your rights.

 

Work with an expert that understands IRS processes and procedures. Then work positively with the IRS, keeping an open mind looking for ways to connect and work through the process with the auditors.

The IRS has a job to do. Respect that. Know that they are individuals. Some are better negotiators than others. Realize this and do your best to explore your BATNA, their BATNA and how you can come to a reasonable conclusion.

To learn more about this topic from the Harvard Law School Program on Negotiation check out this article.

Mike Gregory is an expert on conflict resolution. He focuses on conflict resolution business to business, business to government (IRS)and within businesses. Mike is an international speaker and he has written 11 books including Business Valuations and the IRS: Five Books in One, The Servant Manager and Peaceful Resolutions. Mike may be contacted directly at mg@mikegreg.com and at (651) 633-5311. [Michael Gregory, ASA, CVA, NSA, MBA, Qualified Mediator with the Minnesota Supreme Court]