Many unethical tax debt settlement companies and tax attorneys who swindle consumers using fear mongering tactics and too good to be true tax resolution results such as abatement of all the late filing and late payment penalties the IRS imposes or promises that they qualify for the IRS offer-in-compromise program (which is never a given for acceptance). Inc. magazine lists tax relief services among its “7 Businesses To Watch Out For”. Being in the industry for the past 10 years I can tell you as an Enrolled Agent (licensed through the Department of Treasury to Represent Taxpayers before the IRS) I’ve received countless calls from taxpayers who previously fell victim to scam tax debt relief companies who claimed they could resolve any tax problem through the IRS tax debt settlement program, the Offer-In-Compromise or obtain a full abatement of penalties.
Through my experience working in this industry for the past ten years here are some helpful tips to help you avoid these types of sharks:
1) Unethical companies promise results… great (and unrealistic) results. To predict an offer-in-compromise’s success before even reviewing a clients financial statements is a huge red flag. Making the IRS accept an offer-in-compromise is no easy task. Even the most skilled tax professionals cannot make the IRS accept offers from some taxpayers.
2) You Receive a Telemarketing Call from an Unlicensed Salesperson. It is a violation of law to be solicited by an unlicensed person (i.e. other than an attorney, certified public accountant or enrolled agent) trying to sell you tax representation services. This does not stop them from filling their sales floors with several dozen slick and pushy salespeople. They will promise you the world then pawn your case over to someone else to work and let someone else deal with their over/false promises. And to make matters worse the people who they pawn your case off to works on a commission and will bill you for anything and everything (i.e. overhead, $50-$100 for a fax, $200 for a phone call, etc.). In all honesty if someone was to buy from one of these places after reading this I think it would be a wise decision for them to get their head examined. Jay Freeborne, an E.A. in Washington State has clearly defined the parameters of how this does not meet the legal smell test here:
3) They claim they’ll have your tax problem resolved quickly. Any process with the IRS is a slow, sometimes ridiculously slow process. An unethical tax relief/resolution/settlement company loves to promise how quickly they can resolve your tax problems.
4) Your company representatives regularly change. I know from experience from working at a few of these firms that the turn over rate is ridiculously high. If you have a different representative every other month, you will know you are dealing with a company that treats its clients and employees poorly.
5) Your first required deposit strangely reflects how much cash you have. First, it is regular practice for a good tax representative to ask that money be deposited before starting a tax settlement case. Let’s face it, a tax attorney is going to be skeptical about whether someone who cannot pay the IRS will readily pay their tax representative. But be skeptical if the tax relief company asks for a deposit based upon the amount you just told them was in your bank account. Most real tax representatives estimate how much your case will initially cost and ask for a deposit based upon that estimate.
6) Unresponsive company representatives… after they have your money. Of course, after the tax settlement company has your money the woo of the sales pitch is no longer needed and they got what they want , your case comes in a distant second. Many of these companies overwork their tax representatives by assigning them 150-200 cases each! A bogged down tax representative can cost you a lot of money if your income or status changes during the delay, not to mention the amount of IRS penalties and interest that are compounded daily.
7) Google them and look for complaints. Now, in defense of anyone practicing in this area, you are never going to satisfy everyone, especially when you have commercials all day popping up about how this and that taxpayer only had to pay fractions of their tax debt. Reputable tax representatives use their best efforts to obtain the best possible results for all their clients, and that’s all you can ask of anyone. But when there are blogs and websites dedicated to how bad they are... walks like a duck, quacks like a duck...