If you’re in tax trouble, there are many businesses out there that focus on helping people like you. The problem is that some of these entities aren’t the most honest and will use dodgy tactics to convince you to hire them.
You’ve probably taken the first few steps in getting tax help, such as contacting some tax relief companies or completing an initial consultation. However, if you’re reading this right now, you’re not 100% sure which tax relief firm you should hire, or the one you’ve contacted leaves you feeling a bit wary. The goal of this guide is to address those concerns by explaining how many of these tax debt settlement organizations operate and what you should look for when selecting one for your particular tax issue.
Key Takeaways
- Many tax relief companies are more about lead generation and signing up new clients than they are about helping people with serious tax problems.
- Generally speaking, the larger the tax relief firm and the more nationwide advertising they do, the more likely they are to offer cookie-cutter “solutions” to taxpayers.
- A common tactic of these tax relief companies is to make lavish promises before reviewing the taxpayer’s financial situation.
- By the time the taxpayer learns they won’t receive the promised tax relief, they’ve already spent thousands of dollars on tax services that don’t help or could easily have been done by the taxpayer for free.
- When choosing a tax resolution business to hire, look for entities that use fully credentialed or licensed tax professionals and are transparent about what they can do for you, what you can realistically expect, and how the tax settlement process works.
How Many “Tax Relief” Companies Work
The sad reality about many tax relief firms is that they focus more on signing up new customers than they do on actually helping their customers. This is why they spend so much money on nationwide marketing efforts (TV, radio, and online) to attract new customers. They also employ volume-driven business models that prioritize churning through cases as quickly as possible, instead of focusing on finding specific tax solutions to unique tax problems.
Here’s how many less-than-honest tax relief firms operate.
Step 1: The Initial Consultation
During an initial consultation, they make promises about settling tax debts for “pennies on the dollar” and use high-pressure sales tactics. The goal is to convince the taxpayer to sign contracts with terms that are highly advantageous to the tax relief company, such as requiring initial deposits of thousands of dollars that are nonrefundable.
Step 2: Process Cases as Quickly as Possible
When the “work” finally begins, the taxpayer must provide a large amount of financial information, which often doesn’t get reviewed by an experienced tax resolution professional, such as an attorney, enrolled agent (EA), or certified public accountant (CPA). Instead, it’s someone with very little tax training who is more of a document processor than a skilled tax professional.
These individuals are pressured by their bosses to grind through cases as quickly as possible. So even if they have the experience and skills to find tailored tax solutions for their customers, they don’t have the time to do so and must propose a “one-size-fits-all” approach.
Step 3: The “Bait and Switch”
In an effort to persuade a taxpayer to sign up with them, the sales reps of these tax relief companies will make misleading promises or assurances that they know their employer is unlikely to be able to deliver. For instance, many customers hope to resolve their tax debts for an amount that’s significantly less than the full amount.
This is typically done with something called an offer in compromise (OIC). Although this is a legitimate tax settlement option, it’s one that few taxpayers are actually eligible for, as it’s usually only available to those suffering from extreme economic hardship or where there’s a genuine question as to the validity of the tax debt.
The reality is that the vast majority of taxpayers with tax debts aren’t eligible for an OIC, as they aren’t in dire enough financial straits or because their tax debt is valid. Because of this, the tax relief company says, “Sorry, you weren’t eligible for the offer in compromise and there are no refunds. But for x amount of dollars, we can set up a payment plan or installment agreement for you.” Thanks to the sunk cost fallacy or a time-sensitive tax collection activity (like a tax levy), the taxpayer feels they have no choice but to continue with the same tax relief organization.
Step 4: The Taxpayer Is Worse Off in the End
Some customers lose money because they realize they’re not getting the help they were promised and find someone else to help them (but lose the initial deposits or fees they already paid). Other customers get some sort of “resolution” to their tax problem from the tax relief company, but at a cost that far outweighs the benefits. For example, they pay $3,500 to set up an installment agreement that they could have established themselves by contacting the IRS directly.
Tax Relief Company Red Flags To Watch Out For
The above-discussed scenarios sound terrible, and they are. People who are in desperate financial trouble get targeted and preyed upon to take what little money they have left. The good news is that there are red flags that can warn of potentially bad tax relief companies.
Red Flag #1: Aggressive Sales Tactics
If you feel pressured or rushed to decide what to do or who to hire, you should probably look somewhere else for tax help. Even in situations where you might only have a few days to stop the IRS from seizing your assets or taking money from your bank account or paycheck, legitimate tax relief firms won’t try to push you into making a decision you’re not comfortable with or ready to make.
Red Flag #2: Heavy Advertising
The more the tax relief firm advertises, the less likely they can offer you tailored and reasoned tax advice for your situation. There are several reasons for this.
First, their large marketing budget means they have less money to pay for skilled tax professionals. Second, because they spent so much money getting your attention, they want to take your case even if they’re not qualified or lack the resources to do so. Third, because they’re a volume-driven business, their tax pros (assuming they’re even qualified) are overworked. This limits the time and effort they can offer each customer.
Red Flag #3: Quick Guarantees
There are few guarantees that can be made in the tax business and even fewer that can be made without a thorough review of the facts and circumstances of a particular tax case. Therefore, the more reputable tax professionals won’t make any guarantees or promises after an initial consultation. Only after a thorough financial analysis can the tax pro identify which resolution options are available, the likelihood of their success, and provide a recommendation.
Even in situations where they’re telling the truth, the guarantee could be misleading. If a company claims they’ve never had the IRS deny an OIC, they could be lying. Alternatively, they’re telling the truth because the first sign the IRS hints that they’ll reject an OIC, the company withdraws the OIC. The IRS can’t deny an OIC that gets voluntarily withdrawn by the taxpayer. The tax relief still comes out ahead because they keep their “perfect record” and all the money their customer paid them (the contract likely states that all deposits and payments are non-refundable).
Red Flag #4: Lack of Transparency on Who Works on Your Case
Legit tax relief companies focus on providing more personalized solutions instead of taking a boilerplate approach. This means they can tell you (if you ask them or by posting on their website) who will work on your case. Their key employees have been with the firm for a long time and don’t have plans of leaving. In other words, they don’t use disposable employees to grind through high caseloads.
Dishonest tax relief firms can’t tell you who will work on your case because it could be someone different each day. For situations where only one person will handle your case, it will be someone the company doesn’t want you to know about.
An easy way to identify these less-than-transparent firms is to check their website’s “about us” page. If there are named individuals with photos and professional bios relating to tax resolution, that’s a good sign. If there’s no “about us” page, or the page is filled with generalities, you should probably stay away.
If the “about us” page only has a few people listed, and they’re the executives, managers, and/or owners of the company, that’s also a potential red flag. While higher-level personnel may handle client cases, they rarely handle the workload exclusively. If they do, they may only work on a handful of cases each. However, in these cases, they won’t have a nationwide advertising campaign, and the other red flags discussed here won’t be present.
Red Flag #5: Use of Buzzwords, Such as “Fresh Start” and “Tax Forgiveness”
These aren’t official programs offered by the IRS for resolving unpaid taxes. While there are tax resolution possibilities that can offer tax forgiveness in the colloquial sense, they typically only apply to part of the tax debt (like with penalty abatement) and go by another name, such as an offer in compromise or a partial payment installment agreement (PPIA).
Basically, if a tax firm uses a term or name for a tax solution that you can’t find on the IRS or other tax agency’s website, it’s a sign you should stay away from that firm.
Red Flag #6: Generic Sounding Company Names
The better tax relief companies tend to focus on regional or local tax work. Put another way, they’re smaller businesses that rely on their good reputation to find new clients. As a result, they’re more likely to use terms, names, and words that fit with the locality they practice in. All else being equal, “Mary Smith Tax Relief Services of Puget Sound” is probably going to be more helpful for you than “Optimized Tax Solutions, Inc.” Check out our guide to choosing between a tax relief company and a tax attorney.
Red Flag #7: The Initial Consultation Leaves You Feeling More Scared or Unsettled
In addition to making promises they can’t keep, some tax relief businesses will use scare tactics to convince you to go with them. They might suggest the IRS will show up at your home or office unexpectedly (this almost never happens) or that you might get arrested if you don’t fix your tax problems immediately.
It’s true that some taxpayers could end up in jail for criminal tax fraud (tax evasion), but you would probably already be aware that this was a possibility before calling the tax relief company. If an honest tax relief firm brought up the possibility of criminal prosecution, it would be to inform you about the severity of your tax situation, not as a reason you should hire them immediately, and not consider getting help from anywhere else.
Red Flag #8: Unclear Pricing Structure
Before hiring anyone, you should have a clear understanding of how their pricing practices work. Even in situations where the outcome and amount of work are unknown, the tax relief company should at least provide some concrete details of what you can expect to pay, such as their hourly rate and a range of work hours needed for your case.
The billing practices should also be clear, or at the very least, not too difficult to understand. If you’re confused about how your tax pro’s billing policies work or can’t get a straight answer about how much something costs, then that’s a potential warning sign.
How to Vet Prospective Tax Relief Firms
Even after eliminating tax resolution companies based on potential red flags, you might still have a list of two or more prospects. How do you then narrow your choices down to a single selection? Here are some things you should look for. Keep in mind that a good tax relief company won’t necessarily have all of these, but the more of these characteristics you find in a single organization, the better.
Verifiable Credentials
The tax resolution firm doesn’t necessarily have to provide license ID numbers on their website, but if they’re going to claim they have CPAs, lawyers, or EAs working on your tax case, they should provide the names of these tax professionals. You can then use their names to make sure they’re fully licensed or certified. How you do this depends on the professional you want to look up:
- Lawyers: you can confirm their attorney (bar) license by looking them up on their respective state bar’s attorney lookup search tool or directory.
- Enrolled agents: contact the IRS to confirm someone’s enrolled agent status.
- Certified public accountants: CPA licenses can be confirmed through CPAverify or state licensure websites.
Other Areas of Practice
You want to hire a tax professional who focuses on tax resolution work. Yet choosing one who does other types of tax work, such as preparing tax returns, defending against audits, or working on estate planning issues, is not a bad thing. In fact, it’s a good sign that the person or company you’re thinking about hiring is not an OIC mill that the IRS has issued warnings about.
Chemistry
You’re not looking for a date or choosing someone to hire, but how well you get along with someone is an important part of finding the right tax relief firm. Ideally, you want to work with someone you feel comfortable with, as that helps foster effective communication.
At the very least, you should avoid a business that leaves you feeling uneasy or unsure about your decision to hire them. Even if they’re honest, not fully trusting them means you’ll withhold information, which can hinder their ability to help you.
Proper Tax Experience
The majority of tax resolution companies can help with most problems taxpayers normally encounter, although some have more experience handling certain matters than others. If you think you need help with a particular tax option, such as filing an appeal or requesting innocent spouse relief, make sure the business you’re looking into offers those services. If what you think you need isn’t on their website, don’t hesitate to ask about it when you contact them to set up a consultation.
Positive Reviews
It’s a good idea to see what others have to say about a tax relief company you’re considering. You can do a simple online search to get started. Make sure you check their Google Business and Better Business Bureau profiles, as well as social media sites, like Reddit and crowd-sourced review sites like Yelp. Don’t just look at their ratings, but also read the reviews and comments people have left.
When reading these reviews, don’t forget that no matter how good a company is, there will be some unhappy customers. Also, remember that people are more likely to leave a review if they’re unhappy. With that in mind, beware of “gamed” or biased reviews where the reviewer gives a review before obtaining an outcome in their case. You want to give the most weight to reviews where there was some sort of resolution to the tax case.
Ask Questions
At some point during the vetting process (like during the initial consultation), there are certain questions you want to ask, such as:
- Who will be working on my case? It’s common for assistants, secretaries, paralegals, or associates to handle some of the work instead of the EA, CPA, or attorney. But you want the tax pro you’ve hired to do much of the work, especially when it comes to the strategy of which approach to take and why.
- Can you walk me through what will happen in my case? No one can predict the future, but your prospective tax pro can at least give you an overview of what to expect in your case. Don’t be surprised if you don’t get any promises or absolutes, but be wary if the person you’re talking to comes across as secretive or vague.
- What do we do if _____________ happens? You want your Plan A to succeed, but things don’t always go according to plan. It’s good to know what your tax pro has prepared for Plan B and what that entails.
Note not just the answers provided to these questions, but how the person you’re talking to provides their answers. If necessary, trust your instincts and go with your gut.
Get a Second Opinion
Even if you feel confident and comfortable after the first consultation, don’t be afraid to schedule a consultation with another tax resolution business for a second opinion. If there’s a disagreement, it’s good to know about the differing professional opinions before committing to a particular tax settlement plan or tax pro hire. Learning why the two tax professionals disagree can teach you a lot about your case and the tax firms themselves.
Get Tax Relief Help From a Real Tax Pro
The primary goal at Seattle Legal Services, PLLC, is to help people like you with tax problems. We believe the best way to do this is to provide as much information as possible to help you make an informed decision. On the off chance we can’t help you, we’ll be more than happy to help you find someone who can. Schedule a consultation today by using the online contact form or calling 425-428-5262.
Tax Relief Consultation Red Flag FAQs
How much should tax relief services cost?
It depends on the facts and circumstances of each particular tax situation. For instance, a typical tax resolution case might cost a few thousand dollars, with simpler matters being under $1,000. Then there are the more complex cases (like those involving several years’ worth of business taxes) that could cost more than $10,000.
When choosing among potential tax relief firms, the key is to find a tax pro who’s transparent and open about what they charge and how their billing works.
Is it possible to settle my tax debt for “pennies on the dollar?”
Yes, it’s theoretically possible with an offer in compromise or a partial payment installment agreement, but for the vast majority of taxpayers, it’s unlikely. What’s more likely is a modest reduction in the overall tax debt, but even then, most taxpayers don’t qualify for that beyond what’s available with penalty abatement.
Are there professional tax credentials that honest and effective tax pros are likely to have?
Yes, there are several. When it comes to professional licenses or credentials, the three biggest are enrolled agents, certified public accountants, and lawyers. As for certifications, the two most prominent are the Certified Tax Resolution Specialist offered by the American Society of Tax Problem Solvers (ASTPS) and the Certified Tax Representative Consultant (CTRC) offered by the Tax Rep Network.
Sources
https://taxcure.com/tax-professional/worst-tax-relief-companies