Tax Relief Companies May Do More Harm Than Good
If you owe back taxes to the Federal Government and are struggling to find a way to repay what you owe, the advertisements for Tax Relief companies may seem like the perfect solution. But according to the Federal Trade Commission (FTC), consumers should be very wary when reading or listening to the claims that these companies make.
The FTC is the nation's consumer protection agency and one of its mandates is to closely monitor and investigate, if necessary, tax relief companies and other bogus businesses which routinely go after financially distressed individuals with promises of getting rid of much or all of their debts.You may have seen the ads on TV or perhaps in a newspaper, over the radio, or via the Internet. Many times tax relief companies tout their success using statements such as these:
- "We can significantly reduce the amount of money you owe to the IRS. Contact us for a free consultation".
- "We can get rid of levies, property seizures, wage garnishments, frozen accounts, and high monthly payments".
- "We have a proven record of helping thousands of people settle their tax debts- usually for a fraction of what is owed".
Most of these tax relief companies require an up-front fee which can be several thousand dollars. Once they receive your money, the company promises to reduce your tax debts and stop all back tax collection tactics by applying for legitimate hardship programs offered by the IRS. However, the fact is that most taxpayers will not qualify for these settlement programs.
The end result is now you have paid a hefty fee to the tax relief company; the company cannot settle your tax debt and frequently does not even send your paperwork to the IRS. Your chances of receiving a refund for the fee which you initially paid are slim and none and to top it all off, you are more in debt now than before.
And it gets even worse! In some extreme cases, the FTC has received complaints that tax relief companies not only charged an up-front fee, they also made unauthorized charges to credit cards and unauthorized withdrawals from clients' bank accounts.
The old adage "If it sounds too good to be true, it probably is" is definitely correct in this circumstance. Unfortunately, most people who are dealing with this particular financial problem are vulnerable to these claims which promise a quick and relatively easy way out. But the FTC urges anyone in this situation to stop for a moment, think, and do the following: Don't panic. Take a deep breath. Consider your options.
Anytime you are having trouble paying bills, it's usually better to speak with your creditors directly, explain the situation, and try to work out a repayment plan. The same holds true when owing back taxes and dealing with the Internal Revenue Service.
Help for Taxpayers from the IRSWhenever you owe back taxes or your re-payments are late, the IRS charges you additional interest and penalties. It does offer several tax relief programs aimed at helping people who owe back taxes:
- Installment Agreement - This is usually available to people who cannot pay the full amount of what they owe in one lump sum payment. This agreement allows individuals to make smaller monthly payments until the entire amount of back taxes owed is paid off.
- Offer in Compromise - This option lets delinquent taxpayers permanently settle what they owe for less than the actual amount. An Offer in Compromise is used to help individuals in very limited circumstances. A person is eligible only after other payment options have been exhausted and the ability to pay has been thoroughly reviewed by the IRS.
In very rare cases, the IRS may offer a penalty abatement to an individual who has a special hardship. But the criteria are very narrow and very few people qualify. Forgiveness of interest charges is even more limited and rare.Taxpayers who owe back taxes can apply for any of these tax relief programs on their own and do not need to use a third party. If you decide to use a third party to negotiate with the IRS on your behalf, there are only certain tax professionals which have the authority to represent you with the IRS. These are:
- Certified Public Accountants (CPAs)
- Enrolled Agents (federally-authorized tax professionals who can legally represent taxpayers before all levels of the IRS)
The Taxpayer Advocate Service, an independent organization within the IRS, provides free help to anyone experiencing serious financial problems or who needs assistance when dealing with the IRS. You may contact this Service by calling toll free 1-877-777-4778 or visiting online at www.irs.gov/advocate.
Tips for Delinquent TaxpayersHere are some good suggestions for anyone owing back taxes and struggling to find a practical solution:
- Don't ignore the situation. Read all the paperwork which the IRS sends you and contact them as soon as possible.
- Be alert to tax relief scams. Only the IRS can determine if you qualify or are eligible for tax relief programs.
- Know when to walk away. If a tax relief company requires an up-front fee for their services, walk away. Always investigate any tax relief company with the IRS.