Should I Hire A Tax Settlement Company?

Should You Use Tax Relief Companies if You Owe Back Taxes?

Preview: Whenever one of my articles has the phrase “walk away” in it, you know where I’m headed.

Tax relief companies use the radio, television and the Internet to advertise help for taxpayers in distress. If you pay them an upfront fee, which can be thousands of dollars, these companies claim they can reduce or even eliminate your tax debts and stop back-tax collection by applying for legitimate Internal Revenue Service  (IRS) hardship programs.  According to the Federal Trade Commission (FTC), the truth is that most taxpayers don’t qualify for the programs these fraudsters hawk, their companies don’t settle the tax debt, and in many cases don’t even send the necessary paperwork to the Internal Revenue Service requesting participation in the programs that were mentioned. Adding insult to injury, some of these companies don’t provide refunds, and leave people even further in debt.

Some taxpayers who filed complaints with the Federal Trade Commission reported that, after signing up with some of these companies and paying thousands of dollars in upfront fees, the companies took even more of their money by making unauthorized charges to their credit cards or withdrawals from their bank accounts.

If you owe back taxes and don’t know how you’re going to pay the debt, the Federal Trade Commission advises that you consider your options. If you are having trouble paying bills, it’s often better to try to work out a payment plan with the creditor yourself than to pay someone else to negotiate a plan for you. The same is true when you owe money to the Internal Revenue Service or your state comptroller.

IRS Help for Taxpayers

If you can’t pay your taxes or your payments are late, the Internal Revenue Service charges you penalties and interest. It also has several tax relief programs to help people who owe back taxes – an Installment Agreement or Offer in Compromise (OIC).

An Installment Agreement is generally available to people who can’t pay their tax debt in full at one time. The program allows people to make smaller monthly payments until the entire debt is satisfied.

An Offer in Compromise lets taxpayers permanently settle their tax debt for less than the amount they owe. This is an important tool to help taxpayers in limited circumstances.  Taxpayers are eligible only after other payment options have been exhausted and their ability to pay has been reviewed by the Internal Revenue Service.

According to the Internal Revenue Service, you can apply for an Installment Agreement or Offer in Compromise without the help of a third party. If you prefer third-party assistance in negotiating with the Internal Revenue Service, 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.

FTC Taxpayer Tips

If you owe back taxes and are having trouble meeting your tax obligations, here are some tips from the Federal Trade Commission:

Read your notices from the Internal Revenue Service or your state comptroller. Ask about collection alternatives.

Save yourself some aggravation by ignoring promises from companies that say you are “qualified” or “eligible” for a tax relief program to resolve your tax debt. Only the Internal Revenue Service or your state comptroller can make that determination.

Walk away if a company requires a fee in advance for tax relief services. Check them out with the Internal Revenue Service.

Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Civil Penalty, Internal Revenue Service, Money & Identity

This post was written by John Ulzheimer