So, you are getting IRS letters and have decided to get some help. You want to make sure that you actually owe the debt and you don’t make a mistake in dealing with the IRS that makes the problem worse. Tax problem firms often ask for thousands of dollars up front. Firms that help in dealing with the IRS offer a valuable service but how do you tell if you are paying too much for that kind of help?
In the last 10 years, helping people with tax debt has become a huge business. The last numbers I saw indicate there are at least 14 million people in IRS collections. ( Of course, if you owe the IRS, you probably owe at least one state as well.) The problem we often see is that the tax help bill is often exorbitant. We have seen where people have paid fees to firms that exceed 50% of the original tax debt. We have even seen a case where the fees paid to the tax firm were over 90% of the tax debt and interest and penalty charges were still accruing on the original debt. Clients may be charged for opening mail or may be billed for update calls at rates exceeding $100 per hour.
The following items might indicate over payment for tax help services.
The first is simple. Are you selecting the company to help you by acting in response to a phone call or a post card. Most firms that use marketing tools like that are paying thousands of dollars and even tens of thousands of dollars per month for sales staff and advertising, whether it is radio, TV, lead purchases, postcards, etc. In fact, people that teach classes to tax firms in tax problem resolution will state that tax firms should no longer consider themselves as tax preparation companies. Instead, they should consider themselves marketers of tax services. If you are working with one of these companies, then a large portion of what you pay will be for marketing and support staff, and not for tax problem resolution. The easiest way to avoid those extra charges is to use a tax firm that doesn’t have a huge tax bill (Google it).
Secondly, all IRS allowed solutions to resolving tax debt require that all prior year tax returns be filed. The fees for preparing those returns are often excessive and may be buried in the invoice that shows your $5000 retainer quickly evaporating. If you typically pay $200 for tax preparation, there is almost certainly no reason to pay $400 or $600 or more for each year that needs to be filed. (The average fee for an individual return prepared at AFS is under $150.)
The third item, Of course everyone wants to pay the least amount of taxes and the most commonly prescribed solution is the offer in compromise (OIC). This is where you pay just pennies on the dollar on the taxes you owe. The ads state that the tax firms will ‘negotiate’ with the IRS to lower your tax bill using this method. However, what most are not told is that less than 1% of debt resolution solutions accepted by the IRS have utilized the OIC. And no one should be offering the OIC up front without seeing all tax returns or transcripts, checking the IRS OIC pre-qualification tool and preparing a financial analysis. The IRS has very strict requirements for OIC acceptance. The OIC is always the lowest cost solution for the taxpayer but if you are being promised this at the outset, you should run. Truth be told, the most common payment solution is an installment plan. Sometimes you can demonstrate a financial hardship and delay payments by requesting a temporarily uncollectible status. This can temporarily halt liens and levies and garnishments as well. You might qualify for a partial payment plan or, in some cases, we find that the debt assessed is simply not correct. In some case, bankruptcy can rid you of older tax debt.
A fourth tactic firms may use to get you in the door on on the phone is to imply that most of their clients settle using the OIC. This could be part of the phone pitch. They could say that 80% of our OIC clients are accepted by the IRS. That could be true and should be. You shouldn’t be applying for and paying for the OIC unless you have a good chance of acceptance. But taxpayers often hear something different. They may think they hear or may hope to believe that 80% of all the firms clients settle using the OIC, not 80% of clients that file for it. The old adage holds, if it sounds too good to be true, it probably is.
Finally, we often see ads that offer help in qualifying for the IRS Fresh Start program. This may sound or look good, but it is misleading. First of all, this isn’t a program, it is simply new guidelines for existing programs, such as penalty abatement, installment agreements, offers in compromise, lien release requests and business and payroll tax problems. It is meant to help taxpayers that have overdue tax liabilities and remove taxpayers from the collection rolls. It is supposed to make it easier to pay back taxes (and it usually does) and also to avoid tax liens or help in getting them withdrawn. There is no qualifying for this. If you owe tax debt, the new guidelines already apply to you.
Here is our shameless pitch. If you are in need of tax help, come in for a free consultation. We can explain your likely solutions and provide an estimate of services. Our fees typically range from $500 to $1500. If you let us, we will prepare all overdue tax returns and then we can provide a firm quote. Potential solutions will be made clear once the total tax debit is known. It is usually best to file the returns as soon as they are prepared but sometimes it makes sense to delay that. The timing of the filing is always up to you.
AFS – USE THE BEST FOR LESS