Are Tax Relief Companies A Scam?

Many tax relief companies advertise on the radio and TV, promising to apply for IRS hardship programs that decrease or eliminate taxpayers’ debt. However, these firms often fail to deliver.

A legitimate firm will consult with you, review your financial data, and provide a realistic assessment of what they can accomplish. Be wary of any company that demands payment upfront.

1. They make unrealistic promises

Many companies that claim to offer tax relief services are not legitimate. In fact, the Federal Trade Commission has received consumer complaints about these companies making unauthorized charges and even stealing money from customers. In addition, many of these companies make unrealistic promises about what they can do for you. For example, they may promise to lower your taxes or get you on a payment plan with the IRS. However, you can usually accomplish these goals on your own with minimal fees. In fact, you can do it for free by contacting the IRS directly or your state’s tax department.

Some of these companies also make unrealistic promises about settling your tax debt for pennies on the dollar. However, the IRS has strict guidelines on who can qualify for this type of settlement. For example, the agency typically only forgives tax debt if you are in dire financial trouble or have substantial equity in your home or other assets. You can find out more about the IRS’s debt forgiveness programs by contacting the agency directly or consulting a licensed tax professional.

Finally, a legitimate company will make sure you understand the process and provide you with a clear estimate of costs before beginning any work. It should also ensure you have all the necessary documents to complete the application process. This is a red flag if the company tries to charge you up-front fees or makes it difficult for you to obtain your own documents.

If you are considering working with a tax relief company, be sure to research them carefully and look for consumer reviews online. You can also ask trusted friends or colleagues for recommendations. If you can’t afford to hire a professional tax relief service, consider hiring a CPA or tax attorney instead. These professionals will often be less expensive than the large national tax relief companies and will likely provide a more personal touch.

If it sounds too good to be true, it probably is. Don’t be fooled by flashy advertisements or big marketing budgets.

2. They charge up-front fees

The Federal Trade Commission has received complaints about tax relief companies that charge upfront fees, often amounting to thousands of dollars. These companies advertise as a lifeline for distressed taxpayers, promising to apply for IRS hardship programs that reduce or even eliminate their federal tax debts. They also promise to halt back-tax collection. However, these schemes aren’t effective. In fact, many of them leave people even further in debt. Rather than relying on tax relief companies, people in financial distress should read notices from the IRS and their state comptroller and ask those agencies about collection alternatives.

Legitimate tax debt relief companies will have professionals on staff who are licensed to represent you before the tax authorities. They will meet with you, review your financial information, and provide a realistic assessment of what they can do for you. They will also charge a flat fee for their services. Look for a firm that has a biography of its attorneys, certified public accountants, and tax agents on its website. Those who have more salespeople than tax professionals on staff should be a red flag.

Some companies lure consumers in by promising to cut their debts with Offers in Compromise, or OICs. However, the IRS has strict guidelines for OICs, and most consumers don’t qualify. In addition, these companies often fail to tell consumers that they will be responsible for paying taxes and penalties.

Another common practice is for tax relief firms to charge upfront “investigation” fees and inform their clients that the remaining work will cost additional money. This is an example of a company taking advantage of price shoppers, and it’s important to find a firm that offers upfront fees with a fixed amount for all services required to resolve your case.

Finally, be wary of any company that promises to waive penalties and interest. Only the IRS and state tax agencies can decide what, if any, penalties or interest to waive. If you are considering a tax relief firm, take time to research it and be sure you understand the services they offer, their processes, fees, and success rates.

3. They tell you the tax authorities won’t work with you

The IRS is a daunting agency that has the power to seize assets and push for extreme collection measures. This makes it a very intimidating creditor for delinquent taxpayers. Many people in this situation hire tax relief companies that promise to get them on a payment plan and stop back-tax collection. However, these companies are not always legitimate and often oversell their services. In addition, they often charge full fees upfront, which is against federal regulations.

A good tax relief company will first obtain key financial data from its clients and then provide them with a realistic assessment of what they can do for a flat fee. In addition, it should be willing to refund any fees paid if they fail to produce the promised results. In contrast, some companies operate more like a sales and marketing company at heart and hire licensed tax professionals to work on your behalf. These companies will usually have more salespeople than actual tax professionals, and they often oversell their services.

In addition, the large number of salespeople in these companies may make it difficult for you to find a professional who understands your situation and can help you resolve it. You are much better off working directly with the IRS or your state comptroller for federal taxes and with a certified public accountant (CPA) or tax attorney for state taxes.

Finally, many of these companies will claim that they can get you all or part of your debt forgiven, but only the IRS can cancel tax debt. In addition, the IRS only forgives certain types of tax debt, and it has very strict criteria for qualification.

The truth is that many of these companies are simply scamming people out of money by preying on their stress and fears. Finding a legitimate tax relief company is possible, but you should do your research and avoid any company claiming it can cancel the debt or get all or part of your debt forgiven. Instead, you should try to work directly with the IRS or your state comptroller to work out a payment plan.

4. They promise money-back guarantees

While legitimate tax relief companies can help with your back taxes, choosing carefully is important. Research is critical to finding a company that fits your needs and has a history of helping other clients and businesses in the same situation as you. Look for credible online reviews and Better Business Bureau ratings, and ask for references. It’s also important to avoid companies that charge full fees upfront and ask you to sign a contract that says something different than what they tell you on the phone or in person.

If a company promises to lower your tax debt or makes claims that sound too good to be true, it’s likely a scam. Only the IRS can determine whether you qualify for tax relief programs, and it’s impossible to predict how much your debt will be reduced. It’s also important to keep in mind that tax relief companies cannot guarantee the removal of penalties or interest. Each taxpayer’s situation is unique, and only the IRS or state comptroller can decide what, if any, charges will be waived.

A good way to identify a legitimate company is to ask for the biography of the attorney, certified public accountant, or tax professional who will work on your case. In addition, it’s helpful to check the company’s website for a free resource library with educational resources. This can help you navigate your own tax questions and make better decisions when dealing with the IRS.

Many people owe tax debt and are seeking ways to resolve it, but they don’t know where to turn. Some companies advertise their services on the Internet, promising to eliminate or settle tax debt for a fee. But these companies often fail to deliver. In many cases, they don’t even send the necessary paperwork to the IRS to apply for federal tax relief programs, leaving their customers in deeper financial trouble.

The best way to settle tax debt is to contact the IRS or state comptroller and try to work out a payment plan. You can also get a free assessment from the IRS to see what kind of relief options are available.