Individuals and businesses that have outstanding tax debt can face severe penalties from the IRS, including the eventual seizure of personal or business assets. To handle this dilemma – which can trigger a significant financial crisis – a new type of business has sprung up to help delinquent taxpayers cope with their tax debts. Known commonly as tax settlement firms, these entities claim that they can either drastically reduce or completely eliminate whatever the client owes the IRS.
Can these tax relief firms really deliver what they promise?
SOMETIMES YES and SOMETIMES NO
IT DEPENDS WHO IT IS.
IT DEPENDS WHO IT IS.
This Flat Fee Tax Service, Inc. article examines how tax settlement firms work and their success rate.
What Are Tax Settlement Firms?
The tax settlement industry in some cases may mirror debt settlement firms in some respects. You need to beware. Many tax relief firms that specialize in IRS tax settlements claim to have a litany of tax experts available who are former IRS employees who can go to bat for clients. In many cases, this may be a substantial misrepresentation. Although there may be a few lawyers and a handful of people in the company who worked for the IRS at some point, the majority of employees probably haven't. In fact, the majority of employees may be little more than minimum-wage customer service representatives.
WITH FLAT FEE TAX SERVICE, INC. YOU WORK DIRECTLY WITH AN IRS TAX ATTORNEY.
What A IRS Tax Relief Company Should Offer
Many tax settlement firms promise to send their so-called experts to the IRS to negotiate on behalf of the client, where they can presumably persuade the IRS to accept a much smaller amount, such as for pennies on the dollar. In reality, nearly all of the contact with the IRS is done via phone and fax.
|IRS Offer in Compromise|
Offer in Compromise
Tax settlement firms use an accepted IRS settlement procedure known as an "Offer in Compromise" in an effort to reduce their clients' tax bills. An Offer in Compromise is an IRS tax settlement agreement that some taxpayers can make with the IRS to settle their tax debts for a lesser amount than what is owed. Not every taxpayer is eligible and qualified to settle through the Offer in Compromise program. The taxpayer must supply substantial information to the IRS about his or her current assets and liabilities as well as projected future income.
The number of Offer in Compromise applications that get approved has risen in recent years due to the Fresh Start Initiative. In order to have such an IRS settlement approved, taxpayers must either prove that the total amount owed is incorrect, the probability of being able to pay back the full amount is very low or paying back the full amount will result in tremendous financial hardship. An Offer in Compromise will take approximately 10 to 12 months to complete.
95% OF FLAT FEE TAX SERVICE, INC. CLIENTS
HAVE RECEIVED A SUCCESSFUL IRS SETTLEMENT.
PER 2016 IRS STATISTICS, THE IRS APPROVED 42% OF THE
80,000 IRS OFFER IN COMPROMISE SUBMISSIONS.
INDIVIDUALS WHO DO THEIR OWN OFFER IN COMPROMISE
HAVE ONLY A 30% SUCCESS RATE.
The IRS Tax Relief Price Tag
The majority of tax settlement companies (especially the ones on TV) will charge their clients an initial fee that can easily run anywhere from $3,000 to $6,000, depending upon the size of the tax bill and proposed IRS settlement. In most cases, this fee is completely nonrefundable. (This fee quite often mysteriously mirrors the amount of "free cash" that the client has available).
FLAT FEE TAX SERVICE, INC. DISPLAYS OUR
IRS TAX RELIEF FEES ON OUR WEBSITE
SOMEONE PAYS FOR THOSE EXPENSIVE TV ADS.
(It doesn't have to be you)
Many disgruntled taxpayers, who didn't receive the tax relief services promised, have also complained to the Better Business Bureau. Some of these so-called tax relief firms have not produced any of the promised results and in fact, the organization was a scam. Many firms also materially misrepresent their fees to clients, perhaps charging them a lower amount, to begin with, and then coming back for more once they are deeply involved in the process.
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IRS Tax Relief Success Rate
As stated above, the IRS rejects the majority of the Offer in Compromise submissions that it receives each year.
Who's The Real Deal?
There are several red flags that should warn away prospective taxpayers considering hiring a tax settlement firm. Any tax relief firm that promises a drastic reduction of a customer's taxes without first getting a detailed financial background on that person is likely going to end up being a scam. A tax professional who does not ask a potential client during the initial consultation why he or she owes the IRS money is not conducting the full due diligence process.
Any reputable IRS tax relief firm will first obtain the necessary financial data from its customers and then give them a realistic assessment of what they can do for a reasonable fixed fee.
Warnings from the IRS
The IRS is probably the most difficult of all creditors for many taxpayers to deal with. It has the legal power to seize assets and to push forward with extreme collections measures, and therefore many delinquent taxpayers find the agency much more intimidating than private debt collectors or credit card companies. Some tax preparation firms (especially the tax relief firms on TV) play heavily upon this fear, promising a lifeline of tax relief professional help that can make their problems go away. Don't be fooled by misleading claims from these outfits that first require substantial up-front payments.
The IRS itself previously issued warnings to the public about fraudulent firms, citing many of the problems listed here. It also offers a detailed description of the Offer in Compromise process and a description of the collections process.
The Bottom Line
The tax settlement business has both good guys wearing "white hats" and bad actors wearing "black hats". Always remember to research the IRS tax relief team that you are looking at and never, ever pay too much.
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