This is a true story: In 2011, "Steve," a taxpayer in New York City, was in serious trouble with the IRS. He searched the internet for an "IRS tax attorney." He made the mistake of believing a tax resolution firm in California are actually attorneys (not his fault, they claim to be). He gives them $32,000 to solve his tax problem. Two years later, his tax balances have gone up, and his situation is now much, much worse: Steve is now facing criminal charges for tax evasion.
UPDATE 2016: I just talked to Steve on March 7th. He was sentenced to a 14 months in a federal court for tax evasion. He spent it in a minimum security prison…that was surrounded by a maximum security prison.
There is big money to be made from the misery the income tax causes.
IRS tax debt relief companies have huge marketing budgets. According to our research, some of them are spending upwards of $18,000 on pay-per-click advertising for IRS debt relief services — per day. That means, in order to hit their profit margins and pay their staff something, they must take in $50,000 a day in new revenue in order to keep the lights on.
So how are they going to get money from you? What questions can you ask to keep yourself safe from making a huge mistake?
1. Are they promising you anything to get you to sign up?
Here's what you need to know about taxes. If you agree with the amount of the tax debt, you can only reduce the amount owed if you don't have the money to pay it. There is no magic wand. If I could lower my tax automatically by hiring myself, I would.
Some scam companies actually make cold calls to people with tax liens. I've posed as one of my clients just to hear what they would say. Here are some of the top lies I've heard over the years:
- Your federal tax lien amount can automatically be cut in half.
- You can reduce your payroll taxes by up to 70% by requesting a penalty abatement in a case where penalties only constitute 20% of the total debt.
- The centralized IRS appeals office is located right next door to this firm so that they have special insider access to the best deal.
Sometimes the answer to a tax problem is cleaning up a mess, getting into current compliance and staying there. Only then can you determine a repayment solution you can live with and have it implemented.
2. Are they giving you nearly unlimited time to pay your fee?
Here's the thing: if you owe money to the IRS, you are not a great credit risk. Sorry to be the one to tell you that. So, if a company is extending payment terms to you for years, you should really be wondering why. Are they really doing you a favor? Are they really investing all of this work to resolve your case in a few months even though you only paid a fraction of your fee, and even though your credit risk for this unsecured debt is terrible?
Could it be that they simply file a power of attorney with the IRS, make a few phone calls and then tell you to fill out a form 433a, without guidance or any sense of urgency? Could it be that because you haven't invested much into your case, they aren't going to either? Because if that's all they did, even if you only made a handful of payments, they would still make money. The thing is, your tax problem got bigger and it will be more difficult and more expensive to repair the delay and mistakes made.
Do you think they they know that if you have an IRS problem, you most likely don't have a big budget right now? You certainly don't have the budget to sue them to get your fee back…
3. If they claim to be attorneys, who is the attorney of record?
This is what damaged the case of "Steve" above. He had a tax problem situation with real criminal exposure. He was told their legal team of attorneys would give him the best legal advice. Thing is, there was never any legal team. He could have found out about this by simply looking for the name of just one attorney on the firm's website. Or he could have refused to hire them until he spoke with an attorney who was actually licensed to practice law.
If Steve had come to us in 2011, we would have stopped everything and put him into the domestic voluntary disclosure program. This would have removed the threat of any criminal prosecution and we would have worked with the IRS to figure out his balance and a settlement structure for the balance. Instead of that, the California firm just let Steve dangle in the wind, never getting the case moved forward, never stopping the IRS criminal investigators from pursuing Steve.
Which is worse, the IRS or dishonest IRS tax relief companies?
I can't say for sure. This, I do know: With the IRS, if you overpay them you have two years to claim your money back (or within 3 years of the return being due). If a tax relief company makes your situation worse, you have little recourse but to get into a long line after they file bankruptcy. Assuming there's any assets left.
If you have a tax issue you need assistance with, contact us to schedule a free, confidential consultation. You can request to speak to one of our attorney's if you'd like!
