Among the quarter million or so hits that Google returns for the search “tax relief” are thousands for so-called “tax relief” companies. During tax season, their ads are a staple of prime time television. To an individual who owes the Internal Revenue Service a significant amount in taxes, penalties and fees, these companies pitches sound like the answer to a prayer:
“Our company has helped thousands of taxpayers just like you settle their IRS debts based on their financial hardship.”
“We can eliminate wage and bank account garnishments and other IRS property seizures.”
“We can can negotiate a significant reduction in the tax debt of individuals and small businesses.”
In reality, claims such as these are nearly always exaggerated at best and, at worst, downright deceptive. As with most promotions for shady schemes, these contain a kernel of truth: the IRS does in fact have a number of programs aimed at providing repayment plans and other solutions for delinquent taxpayers.
However, to qualify for one of these programs a taxpayer must meet certain minimum requirements. Unfortunately, a large percentage of the individuals taken in by tax relief promotions don’t qualify, a fact they often don’t learn until after they have paid a hefty – and frequently nonrefundable – upfront fee.
The Federal Trade Commission has the legal authority to take action against a wide variety of businesses that engage in deceptive or unfair trade practices. According to consumer information on the agency’s website, complaints received against tax relief companies have run the gamut from failing to file necessary paperwork to charging unauthorized additional fees to the consumer’s credit card account.
In the first action of its kind, in 2013 the FTC brought a deceptive practice action against American Tax Relief and some of its principals. Although the Commission alleged that consumers were bilked out of more than $100 million in fees, it agreed to a settlement in which the individual defendants were to surrender only about $16 million in assets, including Beverly Hills and Los Angeles real estate, jewelry and a 2005 Ferrari. The bulk of the money collected from the liquidation of these assets has been refunded to affected consumers, however.
IRS Help for Distressed Taxpayers
Tax relief companies typically suggest that their trained and experienced CPAs and agents can get results not achievable by ordinary taxpayers themselves. Despite its nearly mythical powers, however, the IRS is essentially the same as your credit card bank or department store – a creditor, though a government one. A creditor’s main goal is to collect from you with as little muss or fuss as possible. Also, the IRS tends to take taxpayers who are speaking for themselves more seriously than those who hire an intermediary. The chances are therefore pretty good that you’ll get at least as good a result by dealing directly with the agency rather than by paying someone else to negotiate for you.
There’s also a wealth of good information, including a series of frequently asked questions on the IRS’s website, www.irs.gov. Also, the IRS’s Taxpayer Advocate Service can provide free help if you’re unable to resolve your tax problems yourself or if you are facing a threat of collection action by the Service.
Here is some basic information about IRS programs for financially strapped taxpayers:
– Installment Agreements – Remember that the IRS is allowed to charge interest (and in some cases penalties) on unpaid taxes. If you can’t pay the IRS in full, you should therefore pay as much as you are able. You may then be eligible for an Installment Agreement allowing .you to pay the remaining balance over time.
– Offer in Compromise – This option allows taxpayers to settle their tax obligation for less than the full amount. It is usually only available after other payment options have been exhausted.
– Penalty and Interest Abatements – The IRS may forgive late payment penalties and interest, but only in cases of exceptional hardship. If you decide to use a tax relief company, beware of any that promise to eliminate penalties and interest. Even if you do qualify, you will of course still owe the full amount of tax.
Finally, in limited circumstances, bankruptcy can discharge taxes. If you’d like to learn more about whether or not you can eliminate your debt, you can schedule a free consultation with an experienced Denver, Colorado bankruptcy lawyer by calling 303.331.3403 or clicking here.