What are Tax Relief Companies?
Tax relief companies make themselves well known via their commercials and also by phone calls to those with a tax lien. If you are behind on your taxes then hiring one of these tax relief companies may be a good idea. But the problem is which tax relief companies to consider and which to avoid. You definitely do not want to hire some franchise tax preparer based in a strip mall. You want someone specialized in tax liability and tax relief strategies.
This article looks to explain what tax relief companies are, who works for them, and what to consider in the commercials put out by tax relief companies.
Are tax relief companies legitimate?
Yes, but not all are created equal. Tax relief companies, unlike CPAs or law firms, specialize in cases where there is money owed to the IRS and/or state, or there is a dispute about what is owed. This may be business or personal taxes. The problem may be related to many actions or inactions including but not limited to non-filing, non-payment, failure to deposit, false tax returns, mistakes on tax returns, audits, and disputes around deductions and exemptions.
How much do tax relief companies charge?
There is no one-size-fits-all solution so costs depend upon the unique tax situation. That said, legitimate tax relief companies do not charge a flat fee, outside of filing a tax return, because it’s impossible to know how much time a particular problem will take to resolve. This is especially so the larger and more complex the problem.
It is best to avoid the flat-fee promise because many of these clients tell us they felt like it was a bait-and-switch. Solving a tax problem may cost more than the initial estimation by the tax relief company, but their service agreement should state clearly if and when additional costs may be incurred.
Is there a difference between a tax relief company and a tax resolution company?
The term tax relief is often used interchangeably with “tax resolution.” Therefore you can group together the following:
- Tax Relief company
- Tax Resolution company
- Tax Relief or Tax Resolution attorney or lawyer
- Tax Relief Service Provider
- Tax Relief Program specialist
What does it take to become a tax relief company?
In order to represent someone with the IRS or a state tax controller, one must have a power of attorney signed. This is form 2848 with the IRS, and states have their own versions. In order to be assigned as a Power of Attorney on this form and thus be able to communicate directly with the government, one must have one of three professional credentials: CPA, attorney, Enrolled Agent. All tax relief companies should be owned by a person with at least one of those three professional credentials.
What is the difference between tax relief companies, law firms, and accounting firms?
The main difference between tax relief companies, law firms, and accounting firms are regulatory and accounting rules. It gets pretty technical and is beyond the scope of this article, but one difference, for example, is that law firms must have a special bank account called a lawyer trust account. Accounting firms have their own rules for billing. Enrolled Agents are more like a CPA than an attorney in this capacity.
What is the difference between an attorney, an Enrolled Agent, and a CPA?
Attorneys and CPAs are licensed at the state level, while Enrolled Agents are licensed at the federal level. An attorney has passed a Bar test and is versed in law in general, and also has a particular area of practice. An accountant has passed an exam on General Accounting Practices, and again may have an area of practice. An Enrolled Agent has passed a test that solely related to the US Tax Code and the IRS, and again may have a specific area of practice.
Note: A tax relief company cannot practice law!
There is often a lot of misinformation in the marketing by tax relief companies in regard to a tax relief company’s ability to practice law, dish legal advice, hold client-attorney privilege, etc. It’s crucial for you to know that even an attorney working at a tax relief company, or a CPA firm, cannot enter into a client-attorney relationship, dispense legal advice, or represent you in court. Only an attorney at a law firm, owned by at least one attorney, can represent a client in a legal capacity. That is the law. There are no exceptions. If a tax relief company suggests otherwise, they just did you a huge favor by explicitly telling you they are dishonest.
Should I believe the savings suggested by so many tax relief companies in their commercials?
This is difficult because each tax relief commercial would need to be examined separately for its substance and tone. Having stated that disclaimer, there are several red flags that you should listen to in tax relief commercials.
1) Tax Forgiveness
A common theme in many tax relief companies commercials is that the IRS will forgive your liability. If you hear that “You may qualify for new tax forgiveness programs,” that is a red flag. They often state percentages of savings and then a bogus client testimonial, then and tell the listener to “call now to see if you qualify for tax forgiveness…”
Tax relief companies advertising in this manner should be avoided.
2) IRS Fresh Start
The Fresh Start pitch is based on the IRS Fresh Start Program, which is a real thing but in reality, has almost none of the suggested diminutions in liability to the taxpayer that these commercials suggest it has. Run the other direction if you hear a commercial state that “you may qualify for a Fresh Start!”
3) The IRS will seize your assets and put you in jail
Another common theme is the draconian force of the IRS. They will take your car, home, your business, and your freedom. Only in the rarest cases does the IRS seize large assets. More common is a wage garnishment or bank account levy, and these happen only after a lot of correspondence from the IRS. It never happens out of the blue. As for jail, you have to do one or all of the following: evade taxes by filing false (or no) returns, use shell corporations to mask money, or not declare money in offshore accounts. The truth is that 99.9% of people with a tax problem do not fit this category.
4) Offer in Compromise
The Offer in Compromise is a legitimate program designed to clear a tax liability that will never reasonably be collected. You have to owe a lot and also owe a lot more than you earn today, might earn tomorrow, and what you own today. The Offer in Compromise is a life-changing option for those who qualify, but the number of people who qualify relative the number who don’t is VERY VERY small. It would be great if any one of us could have our tax bill forgiven, but the IRS doesn’t give gifts.
According to the IRS’ Data Book, put out every year (most recent is 2015), the actual rate of IRS Offer in Compromise accepted compared to the number of people who filed a tax return was just 0.001% of tax returns filed for 2015! Many tax relief websites claim crazy large amounts of savings for clients and crazy high Offer in Compromise acceptance rates. It is worth repeating the reality that IRS makes a deal in 0.001% of tax returns. If you wish to read more nerdy tax data you may enjoy the article on IRS Collections Facts and Statistics.
Why am I getting calls from tax relief companies
If you are getting calls from tax relief companies that is because a tax lien has been filed on you or your business. Some tax relief companies call tax liens to see if they can be of service with the tax lien liability. These phone calls will come immediately and in very high volume, and will undoubtedly drive you crazy.
Pro Tip: Our advice is that you tell whoever is calling you that the tax lien was a mistake on the IRS’ part, the IRS has already filed a Certificate of Discharge, and there is no Balance Due. And then, if you do have a legitimate tax problem (remember that a tax lien opens the door for bank levies and wage garnishments) talk to a licensed professional at a tax relief company you trust.
Final Notes on Tax Relief Companies
Both the commercials you hear and the calls you may get from tax relief companies will be, on average, off-putting. Do not throw out the baby with the bathwater, however. There are good tax relief companies that can really help you solve your tax problems faster, with less stress, and possibly some savings. They can be your best defense to bank levies, garnishments, and the time-creep of compounding interest. A tax liability grows over time like a credit card, so getting it resolved as quickly as possible is in your best interest (pardon the pun).