Among the options at your disposal when Uncle Sam says pay up and you can’t quite answer the bell, making an offer in compromise requires doing something most consumers would rather avoid: talking to the IRS. Heck, that might even be necessary to nail down a viable payoff plan too. But whether folks dread the task because of some sort of stage fright or an old-timey disdain of the tax man, we all have to come to a realization: Actually picking up the phone and talking to a live person can be quite effective.
Not only can you establish a rapport with someone who may humanize your situation a bit, but you’ll be able to more efficiently convey information back and forth with the bureaucracy, hash out payment plan details, etc. It’s also pretty much inevitable because believe it or not, people get into disputes with the IRS all the time.
In other words, it makes sense to learn a bit about the ancient art of negotiation. After all, your ultimate objective in any conversation with the IRS is always going to be to get your own way.
The way Margaret Neale – the Adams Distinguished Professor of Management at Stanford University’s Graduate School of Business – sees it, there are four basic steps to a successful negotiation:
- Assessing the Situation: "Is there a way that I can engage my counterpart to be able to think about an alternative that would keep them as good off as they are but make me better off? … If somebody comes to me with a gun to my head and says, ‘Your money or your life,’ that assessment would result in a situation where I’d say you know what, this is not an opportunity for negotiation. … The situation is one where the creative solutions that I might consider are overshadowed by the incredible cost I might bear if they were unsuccessful."
- Devising a Plan: "I have to figure out what do I want from my counterpart? What are they trying to achieve? What’s important to them? … We think of the IRS as this monolith, but the agent with whom you are speaking is a human being, and so what motivates him or her? You need to think about these things as well as the content of your dispute. And you need to think about what are the outcomes that would be good for you, what are the outcomes that would be good for them, and where’s the opportunity between those positions or among those positions where you might be able to propose some creative alternatives or provide information that changes the nature of the interaction."
- Making a Proposal: "The third point is to make the ask or to make the presentation. Part of that asking and presentation process is you’re also verifying the information that you believe you understand about what’s important for them and what they care about and what they’re trying to achieve."
- Negotiating a Complete Deal: "Think about an ongoing package where there are multiple issues that are being considered simultaneously. … Most folks make the error of negotiating issue by issue … so the question is can we yolk these various issues together to be able to create value?"
That is, of course, a simplified explanation intended to give you a base of knowledge with which to operate. There’s also an endless array of other nuanced theories, techniques, and tips that you can use to build upon this foundation, including:
- Consider Every Dealing with the IRS Part of the Negotation: "I see filing my personal income taxes as my first negotiation move towards the IRS," says Horacio Falcao, an affiliate professor of decision studies for INSEAD - the so-called "business school to the world." "There is enough legitimacy that I have to pay a certain amount of income taxes every year, so I do not question that. I read all the relevant materials in attempting to be well prepared and I try to use all of the exemptions they give me, since I do not want to overpay. However, I also make sure to not do anything funny even if by mistake, so that I do not come across as underpaying. The reason for that strategy is that I want to bring the risk that the IRS wants to talk to me as close as possible down to zero. Because they have a lot of power compared to poor old me, I play as safe as possible. In other words, the risk of being caught doing some wrong is significant and the cost is potentially very high. So doing a risk/reward analysis, I realized that I do not want to run this risk. If the law says I need to pay, I pay. If it says I may have to pay, I ask. And I surely research a lot to find what the law allows me not to pay or use to reduce my payment. I did get called in once as a result of a “random check”, my assumption is that IRS personnel cannot lie, but the negotiator in me kept that assumption in check and, just in case, adopted a very risk-averse strategy. My strategy was that of total collaboration to demonstrate that I never intentionally tried to fool the IRS on anything and if there were a mistake in any of my fillings that I was ready to pay, but that first and foremost it was a mistake. Had they found something (though there was indeed nothing funny and it seems it was really a random check), I would probably have asked to see the laws or regulations that proved that I made a mistake and if the amount was truly owed, depending on its size, I would have attempted to negotiate payment terms. I would also have asked to learn so as not to make the same mistake again in the future."
- Prepare Diligently: "Have all the facts, documents, and information and review them,” suggests Nancy Soonpaa, a professor of negotiation and director of the Legal Practice Program at the Texas Tech University School of Law. “If thinking on your feet doesn’t come naturally, then brainstorm and practice beforehand. Have someone else take on the role of the person with whom you’ll be negotiating and practice saying the words. Saying them, rather than just thinking them, makes a huge difference in your comfort and confidence level."
Lisa Barron, an Organization and Management lecturer with the University of California, Irvine’s Paul Merage School of Business, adds: "Practice understanding positions and interests (you can do this on your own by practicing understanding your own interests in everyday life). Also, there’s lots of information about positions and interests on the Web and in numerous books about negotiation. Once you learn to think this way (interest-based thinking is not, in my experience, our default way of processing) you will be able to do it more easily in real time."
- Avoid an Adversarial Mindset: "When you’re negotiating with a much more powerful party … characterize the interaction not as an adversarial process because that makes it very difficult for you. You’re not going to win,” Neale recommends. “But you can solve problems. … You have to figure out what information they don’t have that you have that makes your solution that you’re going to propose to them a persuasive alternative."
Barron adds: "People tend to approach negotiation with fear. This often makes them behave aggressively and miss opportunities to listen and reach a mutually beneficial agreement. Negotiation is really a formalized way of talking, and you don’t have to reach an agreement. So, if people can calm down, explore interests, identify common ground, and use creativity to generate solutions, they can often find mutually-beneficial agreements."
- Be an Active Listener: "Listen carefully. Often, solutions can be uncovered if you carefully listen to the constraints, concerns and needs of the other party,” Barron says. “Ask questions to uncover interests. Be curious and really try to understand the other party’s perspective."
- Don’t be Afraid to Take a Break: "The phone-call isn’t going to last for eight hours, right?” Neale says. “You can set times and you can set constraints and you can come back. The notion of sticking through and gutting it out is more something that comes from TV and movies. Sort of the deadlines, guys around a table doing labor negotiations as the clock ticks when the contracts run out – most negotiations don’t happen like that."
- Make Good Decisions Each Step of the Way: "The cornerstone of an effective negotiation is to systematically make good choices," Falcao says. "Every negotiation move is a choice we make among the various potential moves. The effective negotiator is the person who consistently makes good and aligned choices that build on one another, creating a momentum that eventually leads to the desired outcome. Said good choices and alignment require first and foremost a good understanding of the problem and a choice of strategy on how to approach it. The strategies available are win-lose or win-win, which means choosing to either use power to get what you want or not. If win-lose is chosen, all moves should be power-based and aspire to maximize your power advantage so that if you are dealing with someone already in a position of power, you either minimize that distance or overturn them. If you chose win-win, your moves should be based on solid communication so that in the absence of using power, you can lead a process to generate the desired outcome. Once we have a strategy, then it is time to implement it and for that good preparation is fundamental: first, the preparation of the individual as a negotiator, since one does not become good at any skill from day to night; and then, the preparation for the transaction, where the negotiator will use a valid framework to prepare the specific implementation moves within the chosen strategy. This is the core for any negotiation, be it with the IRS, an employer, or anyone in a position of power."
Whether you’re a natural at wheeling and dealing or an introvert at heart, you’re not going to become an expert negotiator without practice. So study these experts’ tips, try them out, and note what did and did not work so you can improve upon your efforts next year. Good luck.