Tax relief companies are sometimes thought to be unreputable because of customer complaints about false promises, high fees, and even blatant scams. While it's absolutely true that the tax relief industry has some bad actors, there are also many reputable tax relief companies with a proven track record of success. Unfortunately, the industry is plagued by scams and bad business practices. Disreputable companies lure customers with false promises while charging high fees.
Still, legitimate tax settlement firms exist. These companies are honest about whether you can benefit from their services and charge reasonable rates that are disclosed in advance. The answer to this question really depends on the company you use for your tax debt relief service. Yes, there are legitimate tax relief companies that can help you reduce your tax debt or sign up for an affordable repayment plan.
However, there are also a lot of fraudulent companies. Do some research before choosing a tax debt relief company that represents you. We generally approve a commitment offer when the amount you offer represents the maximum we can expect to charge in a reasonable period of time. Explore all other payment options before submitting a commitment offer.
The Offer in Compromise program isn't for everyone. If you hire a tax professional to help you submit an offer, be sure to check their qualifications. Fortunately, since what the IRS (and any other tax enforcement agency) really wants is what is owed to the government, there are ways out of the tax debt problem. Despite its intimidating reputation, the IRS does not intend to punish out of spite.
In addition, since it knows that it can only raise money if the money actually exists, the agency has payment options for taxpayers in difficult situations. Most tax settlement firms promise to send their experts to the IRS to negotiate on behalf of the client, where they can presumably persuade the agency to accept a much smaller amount, often cents on the dollar. Oh, and taxpayers who expect a refund in the following years can forget about that; the IRS will apply them to any unpaid taxes due. If your financial situation improves significantly, CNC status will be removed and you are expected to pay the taxes due or face penalties and interest.
You don't need a tax relief company to apply for any of these programs, but it can certainly be helpful to have a tax professional on your side when deciding which option is best for you. Installment agreements won't actually reduce the amount owed in taxes, but they will create a payment plan that will make it easier to pay that tax debt. Relief usually takes the form of a payment plan or a debt settlement, also known as a commitment offer. Before diving into the potential benefits of a tax relief company, it's important to note that not all tax debt relief companies are trustworthy.
Those seeking help with their outstanding tax balances are generally in the best interest of having their tax or financial advisor refer them to a qualified tax lawyer with years of experience in this area. Compare that information to anything a tax settlement company tells you to ensure that you have received the correct information before deciding whether or not you want to retain the company. Some companies have television advertising campaigns that attract customers with claims that companies have special experience or knowledge that allows them to settle customers' tax liabilities for a penny on the dollar. The number of customers who get satisfaction from tax settlement companies is negligible and most are practically in financial distress.
Often, you'll hear announcements from tax debt relief companies about “cents on the dollar” settlements. Other companies will send a consumer forms to request a “transaction offer” from the IRS, which the company knows will be rejected due to strict IRS guidelines for debt forgiveness under that program (see below). Any reputable tax relief company will first obtain key financial data from its clients before giving them a realistic assessment of what they can do for a reasonable fixed fee. Some companies try to defraud taxpayers by promising them that they can make the tax debt disappear, while misrepresenting how long the process takes to reduce or eliminate tax debts.
The IRS has published a consumer alert warning consumers not to be fooled by promises that companies can settle their tax obligations cheaply through the OCI. . .