Posted by The TaxAdvocate Group, LLC

Do Tax Relief Companies that advertise on TV effectively get you an OIC or take your money and make false promises?

Do Tax Relief Companies that advertise on TV effectively get you an OIC or take your money and make false promises?

Individuals and businesses with unpaid tax balances may face severe penalties from the Federal Revenue Service (IRS), including possible forfeiture of personal or business property in some instances. To deal with this dilemma, which can trigger a significant financial crisis, a new business type has sprung up, which helps taxpayers unable to meet their tax debts.

Commonly known as tax settlement companies, these entities claim that they can significantly reduce or eliminate what the client owes to the IRS. But can these companies deliver on their promises, or do you need to be careful with them? This piece examines how tax settlement companies work and their success rate.

 

Key Points to Note

  • Most tax settlement companies charge high taxes.

  • Qualifying for OICs is difficult and usually takes at least a few months.

  • Tax settlement companies claim to have a litany of experts (typically former IRS employees) who can defend their clients.

  • The tax settlement agency's commitments are virtually impossible to meet because the IRS rarely accepts a compelling proposal to reduce the tax owed.


What Are Tax Settlement Companies?

You've probably seen commercials on TV about desperate people who owe the IRS tens of thousands of dollars and no one to help them. Then they go to these tax settlement companies to step in on their behalf, and the companies, in turn, leave great messages for their clients, saying hundreds of thousands of dollars has miraculously been reduced from their tax debt. The customers are delighted, more than satisfied. But that's TV, and things don't necessarily work that way in reality.

If you are confused about the tax settlement industry and what it does, think about the debt settlement business. Both work the same to some extent. Most tax settlers say they have a litany of tax experts who are former IRS employees who can help their clients. It can be a significant detriment, at least in some cases.

While there may be a few attorneys and a handful of people in the company who have worked for the IRS at some point, most of the employees probably haven't. Most employees can be little more than service reps for minimum wage customers.


What They Offer

Most tax settlement companies promise to send their experts to the IRS to negotiate on behalf of their clients. The agency can persuade the IRS to accept a much smaller amount, usually cents on the dollar. This is almost impossible to do, and the IRS rarely accepts an actual reduction in the amount of taxes owed. Of course, there are some very extenuating circumstances in which Uncle Sam accepts a retroactive tax refund agreement, including:

  • If the debtor cannot get paid employment

  • If the taxpayer does not have assets that can be used largely to cover the necessary tax obligations.

  • If the taxpayer is about to die

Perhaps the best thing that can be hoped for is an extension of the deadline for paying tax debts.


Tax Settlement Company Price Tag

Most tax settlement companies charge their clients an upfront fee ranging from $ 3,000 to $ 6,000, depending on the tax account's size and the proposed transaction. In most cases, these fees are non-refundable. These fees often mysteriously reflect the amount of free money available to the customer. This is usually the amount that the company says it will save the customer by paying taxes.

Some customers have also complained that some of these companies failed to deliver any of their promised results. Hence, such organizations have been labeled as a scam by these customers. Additionally, many companies incorrectly present their taxes to customers, likely charging them a lower fee upfront before returning after being deeply involved in the process.


The Success Rate Of The Settlement Company

As mentioned above, the IRS rejects most of the offers it receives each year. Therefore, the number of satisfied clients of tax settlement companies is likely to be less than 10%, and most of them are virtual without financial resources. The vast majority of potential settlement clients must develop IRS payment plans that allow them to pay their tax balances on time while preserving their assets and their dignity.


Are these Companies Real or Fake?

There are several warning signs that potential clients wanting to hire a tax settlement company should be aware of. Any business that promises a drastic reduction in a customer's tax without first having that person's detailed financial history is likely to end up being a fraud. Any tax professional who does not ask a client why they owe the IRS money does not go through the entire due diligence process necessary for a proper appeal is likely to end up being a fraud. 

Any reputable company will first receive important financial data from its client before giving them a pragmatic assessment of what they can achieve for a reasonable flat rate. Potential customers would do well to find a local business in the market for several years and have a community presence.

 

Offer in Compromise

Tax settlement companies use an accepted IRS procedure, known as an offer in compromise, to reduce their clients' tax accounts. This is a peculiar agreement that some taxpayers can enter into with the IRS to pay off their tax debts for less than the amount owed. The taxpayer must provide the IRS with important information about their current assets and liabilities and their anticipated future income.

Additionally, offers as it is sometimes called takes at least a few months to complete, and qualifying for any of these offers can be more difficult than qualifying for Medicaid. There is no cost reduction strategy available for this route.

The number of employment offers generally approved is very low. For this reduction to be approved, taxpayers must demonstrate that the total amount owed is incorrect. The plausibility of being able to repay the full amount is very low, or that the full amount will be repaid will cause enormous financial hardship.

Auditors' scrutiny is not always the last word. Many verified taxpayers can successfully redeem their checks and save thousands of dollars.

 

IRS Warning

The IRS is probably the toughest of all the creditors that many taxpayers deal with. It has the legal authority to confiscate assets and take extreme collection action. As a result, many non-compliant taxpayers find the agency much more intimidating than private debt collectors or credit card companies. Tax preparation companies rely heavily on this fear, promising a lifeline that can solve their problems. Don't be fooled by the misleading claims from these teams that they need big upfront payments first.

The IRS itself has warned the public against fraudulent transactions, citing many of the issues listed here. If you can't pay your taxes, you know the IRS has many ways to collect what you owe. Publication 594: The IRS Collection Process provides a detailed description of the engagement process and a description of the collection process. Compare that information with anything a tax settlement company tells you to make sure you've received the correct information before making any decisions about whether or not to keep your business.


Bottom Line

Tax regulations are always fraught with dangers; hence it wouldn't be wise to patronize these companies. Those seeking help with their unpaid tax balances should ask their tax or financial advisor to refer them to a qualified lawyer with years of experience in this area. They must also be prepared to undergo thorough financial analysis and a bureaucratic process that can take months. Most importantly, be prepared to hear the word no from the IRS at the end.


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