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Beware of Tax Resolution Companies - Things to Consider When Seeking Representation with the IRS

Owing taxes to the Federal Government is never intended to be part of the plan, yet we can find ourselves in this position for a number of reasons. Whether a truck broke down, a mortgage needed to be paid, or an unexpected health emergency occurred, it is not uncommon to be placed in a position where you are choosing to sacrifice the funds you would have otherwise paid towards your tax bill just to stay afloat personally.

Tax  Relief Highway Sign

In 2022, nearly 58.2 million taxpayers were in a position where they needed to interact with Internal Revenue Service (IRS) collections in some way. So, while it can feel scary, intimidating, or lonely to owe the IRS money, it is not a unique circumstance and there are a myriad of ways to tackle the problem to be sure you get back on track with them.

Many people reach out to Tax Resolution Firms (or, are hounded by them in the other direction) when looking for direction on how best to address a tax debt. The same way we seek help from a doctor, lawyer, or CPA for certain and specific advice, it can be very helpful to track down help when looking to address tax debt.

With that said, it is equally, if not more important, to really research, vet, and ask questions of the people you would be entrusting with this process. Choosing the wrong representative can lead to long delays with the IRS, avoidable IRS penalties, and very costly fees for work that ultimately never gets completed.

Having worked for 4-different companies in my 11-year career, and knowing folks who work (or who have worked) for many other companies, I take great pride in keeping a finger on the pulse of the industry so that I can serve people in the most effective way possible.

The industry has changed significantly over the years and there are many options when it comes to finding someone to help you. While I never make a point of speaking ill for the sake of it and I believe there are very good firms out there to work with, I think it is time to shine light on some of the more predatory practices I’ve seen so as to help people avoid falling into these traps themselves.

I will outline here some of the more egregious practices I’ve seen and some tips and tricks to choosing a representative.

The first thing to always remember is that if something sounds too good to be true, it probably is. Firms will sell you an Offer in Compromise (part of the Fresh Start Initiative) without even properly qualifying you for this type of strategy.

While there are a number of IRS programs designed to help taxpayers resolve their debts in a way tailored to their specific needs, the idea of settlements (Offers in Compromise) should not be a first thought. 1 in 1,124 Offers in Compromise are accepted by the IRS. They are becoming more and more rare as the years go on.

The bar to qualify for this type of resolution has become so high that unless you have a truly ironclad case, it is highly unlikely this type of resolution strategy would be effective.

Firms often charge between $5,000-$20,000 to submit this type of resolution. The process can take up to two years and then when the IRS rejects the offer, the firm will charge you again to reach the payment plan you probably should have been set up on in the first place.

Be sure that any company you choose to engage with is not charging you for this type of service up front without ever having talked to the IRS. Furthermore, you will want to be sure they have truly qualified you for this and have outlined clearly the reasons why they believe this would be successful for you, specifically.

A second thing to pay attention to is the use of fear tactics. Is a firm attempting to scare you into letting them represent you?

Firms will often try to scare folks into hiring them by threatening that the IRS can seize all of their assets and garnish all of their wages. They will make tax liens sound like they are going to ruin you financially. They will tell you that you are open to enforcement and that if you pay them today, their team of experts will put an immediate stop to this type of action just by virtue of you signing a Power of Attorney.

These types of marketing tactics are misleading, unfair to the consumer, and are often factually untrue.

Keep in mind that the IRS does not just seize property. It takes a long time for that to even be on the table and you would have had to neglect your debt for a long time. Even if you’ve received notices from the IRS that state, “Notice of Intent to Seize or Levy,” you typically still have time to address it with them before that action takes place.

Additionally, the IRS does not just throw people in jail; they don’t freeze driver's licenses (though some States can if you owe a State Tax); and, they don’t stop you from traveling if you hold a currently valid passport (they can keep you from renewing or obtaining a new passport, but as soon as you are in a resolution with them, that action is reversed).

The bottom line is, if someone is trying to scare you into letting them “help” you, they are likely not worried about your best interests.

While you will not always hear what you want to hear, a good representative should always lead with providing answers to your questions and outlining all available options so you can make the best and most educated decision for yourself specifically. Instilling fear for the sake of forcing you to engage in representation has no place in that process.

The last predatory type of action I’m going to address here is a newer tactic that I’ve seen arise in the last year. This is where a Tax Resolution Firm will “partner with” or “suggest” a specific lender who can issue you a loan to cover your fee with the firm and then you are paying back this lender for the work you hope the Tax Resolution Firm will complete for you.

This might be the most insidious behavior I’ve seen in my experience. These firms often rely on scare tactics and over-promise you results - the two prior items discussed in this article. They quote you a fee for services without ever having talked to the IRS on your behalf and they’ve scared you so much that you feel you have no other option, but to go along with what they are selling you.

They then offer a “quick and easy” solution to your problem of not having the full fee to get started with them when they set you up with this lender who can help.

The lender approves the loan and issues the funds on your behalf to the Tax Resolution Firm. Now, the firm has been paid in full and you are now stuck with a bill owed to the lender who paid them for you.

This makes it so much more difficult to hold your new representatives accountable to what they promised you. You can’t ask for a refund. You can’t stop payments. You are hog tied to that debt regardless of whether that firm delivers or not.

If a firm is offering to set you up with a lender, my suggestion is to RUN AWAY.

While there are many things to look out for when considering hiring a firm to represent you, the biggest thing is to remember that self-advocacy is the most important part of your process. You should feel like you understand the process, that you can ask questions and be heard, that you can reach someone when you need to speak with them, and that you feel you are still in the driver’s seat when it comes to the financial well being of your household and family.

If you feel you have questions about any of the above or have experienced these types of tactics, feel free to reach out to our team at ATBS. Regardless of whether you are currently using us for services, it is important to us that taxpayers have access to resources that can help them navigate the complexities of the IRS collections system without falling prey to nefarious firms who over-promise, over-charge, and under-deliver.

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