Tax Relief Companies — More Pain Than Gain?

By Carol Kando-Pineda, Federal Trade Commission

If you owe back taxes and you don’t know how you’ll pay, you may be looking for help. A company that promises to significantly reduce your tax bill may seem like the answer to your problems. Slow down. You could end up deeper in debt. According to the Federal Trade Commission (FTC), the nation’s consumer protection agency, tax relief companies claim that they can reduce or even eliminate your tax debts and stop back-tax collection by applying for legitimate IRS hardship programs. That’s if you pay them an up-front fee, which can be thousands of dollars. The truth is that most taxpayers don’t qualify for these programs. To make matters worse, these tax relief companies don’t settle the tax debt and, in many cases, don’t even send the necessary paper work to the IRS. They may even take more of your money by making unauthorized charges to your credit cards or withdrawals from your bank accounts. Save yourself some aggravation and ignore promises from companies that say you are “qualified” or “eligible” for a tax relief program to pay down your tax debt. Only the IRS can make that determination.

The FTC has these tips for people who are behind in paying federal or state taxes.

Walk away if a company requires a fee in advance for tax relief services.  If you prefer third-party help in negotiating with the IRS, only certain tax professionals — Enrolled Agents (federally-authorized tax practitioners who can represent taxpayers before all administrative levels of the IRS), Certified Public Accountants (CPAs), and attorneys — have the authority to represent you. Their services should involve a face to face meeting where they explain your options and their fee structure.

Do your research. Read your notices from the IRS. Ask about collection alternatives. The IRS offers this information (Publication 594) and video explaining options available to taxpayers. Contact the Taxpayer Advocate Service, an independent organization within the IRS that provides free help to people who are experiencing financial difficulties or who need help resolving a problem with the IRS. Call 1-877-777-4778 or visit www.irs.gov/advocate.

Check with your state comptroller. The tax settlement process varies from state to state.  In some states, legitimate tax debt can’t be reduced at all. For a state-by-state listing of comptrollers, visit the National Association of State Auditors, Comptrollers and Treasurers (NASACT) at nasact.org.

To learn more about dealing with debt, visit, ftc.gov/moneymatters.

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