Choosing tax relief options can feel overwhelming, especially if you’re dealing with bank collections, wage garnishments, or tax liens. Although legal tax relief services exist, some companies target vulnerable taxpayers with promises that are too good to be true.
A reputable tax relief company can help you understand your options, communicate with the IRS, and possibly reduce the amount you owe. Recognizing reliable providers and knowing how to avoid scams can help you protect your finances and make more confident decisions about resolving your tax debts.
Tax reduction company structure
“Legal tax relief services begin with a discussion of the facts of the case, a detailed analysis of the debt, and a plan for available solutions,” says Stephen Weisberg, a tax attorney with W Tax Group, a Michigan tax relief firm. “From there, they negotiate a resolution with the IRS, respond to notices, and protect taxpayers from collection.”
Tax relief companies do not find loopholes or create opportunities to reduce your tax liability. Instead, it does the heavy lifting for you by helping you navigate the options the IRS already offers taxpayers through their tax codes. These options typically include:
- Setting up a payment plan: A tax relief specialist can help you defer paying taxes or create payment plans to spread your tax liability over time. Keep in mind that payment plans are some of the most common tax relief options and are often available whether or not you hire a tax relief professional.
- Reduced penalties: A professional may be able to help you negotiate a reduction or denial of penalties related to late payment of taxes. It is possible to negotiate a reduction in interest for late payments, but this is not common.
- Reach agreement through compromise: In some cases, an offer in compromise is available to reduce the amount you pay to the IRS. Tax relief companies can also help negotiate these agreements if paying taxes puts you in financial difficulty.
- Review your past tax returns to make sure you haven’t missed any deductions or deductions. In some cases, an expert can identify missed deductions or tax credits when amending a previous return, potentially reducing your taxable income or reducing the amount owed.
- To exchange a returned item: If you don’t file your taxes, the IRS will file them for you, but it won’t include any credits or deductions. A tax relief specialist can retroactively file your taxes instead of filing, often reducing the amount owed to the IRS.
- Legal representative: In some cases, a tax relief specialist may represent you if you need to file a case with the IRS.
Are tax relief companies legal?
Some tax relief companies can help reduce your liability to the IRS. Unfortunately, some people use misleading advertising and make unsubstantiated claims about how much tax relief they can claim to gain business without providing any additional value.
Some tax relief companies are legal, but they don’t get special treatment from the IRS or access to exclusive programs. Instead, legitimate providers can make the resolution process easier and less stressful by helping taxpayers understand their options, prepare documents, and communicate with the IRS.
Common tax relief scam warning signs
Emotions often run high when the IRS notifies you of a debt. That’s why it’s especially important to be aware of the red flags when using one of the many tax relief companies out there. Here are some warning signs to look out for to protect yourself from scams.
- guarantee: Ultimately, the IRS determines whether you qualify for any type of tax relief. Any company that suggests otherwise may be trying to scam you.
- Companies that pre-qualify taxpayers: Pre-qualification is often a tactic to win business. “(Legitimate) companies always start with a detailed review of a taxpayer’s finances and typically request a copy of the taxpayer’s transcripts,” says Gene Bott, a certified public accountant and partner at Tax Hive, a Utah-based full-service tax preparation firm. “They’re trying to understand the details of what’s going on so they can decide on the appropriate response.”
- A promise that sounds too good to be true: Also be wary of companies that suggest they have high support for cuts. “Settlements are often paid out in much greater proportions than ‘pennies on the dollar,’ typically something like $0.50 on the dollar,” said Christopher Jarvis, registered agent and president of Lone Wolf Financial Services, a Georgia tax services firm. “The approval rate for offers in compromise is approximately 21%, so it is rare for a settlement to be reached for less than that amount, no matter the amount.”
- High upfront fees with no clear service: A company that charges a high upfront fee without explaining what work will be done can be a red flag.
- High pressure sales strategy: A company that uses high-pressure sales tactics, such as pressuring you to close a contract within a certain period of time, may be dishonest.
- Claims about “new IRS programs” that don’t exist: The tax relief options available have been written into the tax code for years. Reports of “new IRS programs” are a major red flag designed to pressure you into signing a contract.
- Companies advised to stop contacting the IRS: The IRS is not your enemy. Companies that portray the IRS that way or suggest that they ignore IRS notices almost certainly have ulterior motives.
How to check tax exempt companies
In addition to avoiding the red flags listed above, there are a few other important things to keep in mind when identifying a trustworthy tax relief company.
- Check the company’s BBB rating. Start by visiting the Better Business Bureau (BBB) website and searching for the company you’re considering. A negative BBB rating isn’t automatically a red flag, but a pattern of similar customer complaints is.
- Look for company complaints elsewhere. See also other complaint sites. You can often find customer ratings and complete company reviews to help you find a reliable provider.
- Make sure the company employs licensed professionals. When interviewing companies, “expect to provide evidence of your status as a tax professional, such as an EA or CPA license, and to ask for details about how you work with the IRS,” says Bott, a certified public accountant.
- Please read the contract carefully. Read your contract or agreement carefully to determine the services you will receive and the expected timeline for resolution. Be wary of guarantees or promises that seem too definitive or too good to be true.
- Compare business claims and IRS programs. Finally, ask what options the company plans to consider and make sure that any programs or tax relief options the company mentions are verifiable on the IRS website.
Direct access to IRS tax relief options
It is important to note that all tax relief options available to tax relief companies are also directly available to you, the taxpayer. These include:
- installment agreement
- Compromised Offer (formerly known as the IRS Fresh Start Initiative)
- reduction of fines
- deductions and credits
- Alternatives for returns and exchanges
However, working with a tax relief company can save you time and energy and can help you find deductions, credits, and even relief options that you might have trouble finding on your own. However, it is important to note that the only difference is the professional’s ability to navigate the tax laws and present your case when negotiating offers in compromise or utilizing other options.
When it makes sense to work with a tax relief company
If you have the time, energy, and patience to consider tax laws and tax relief options, you can save money by doing the work yourself, especially with free services like the IRS Taxpayer Advocate Service. However, if any of the following apply to you, it may make sense to hire a tax relief professional.
- The tax debt you owe is large.
- The IRS has already collected your account. This means you have been notified of a bank levy or wage garnishment.
- I have years of unfiled returns that need to be amended.
- You are facing financial hardship and would benefit from the best possible representation for relief.
- You don’t have time to dedicate to finding the best course of action for your situation.
conclusion
While some tax relief companies are legitimate, others use misleading claims to take advantage of vulnerable taxpayers. Knowing how to differentiate between the two and finding a trusted professional to help you handle your tax debt is critical, especially as companies with bad reputations prey on emotional taxpayers who are in a dangerous position.
Remember, the IRS tax relief eligibility rules will determine the outcome of your case. So be wary of claims that overpromise. Before hiring, be sure to search online for company complaints and reviews, read the contract carefully, and don’t be afraid to ask questions about strategies and options.
Start by exploring our interactive map of tax relief providers to compare companies and find support near you.
Frequently asked questions about tax relief company fraud
Are tax relief companies legal?
While some tax relief companies are completely legal, there are also unreputable providers out there who are just trying to extort your money. Reputable companies make reliable claims even if they don’t promise results, thoroughly assess your situation before signing a contract, and clearly state the strategies they will employ to put you at ease.
Can a tax relief company really reduce my tax debt?
A tax relief company may reduce your tax liability, but eligibility for programs and options is determined by IRS guidelines, not company benefits. Tax debt is most commonly reduced if paying it in full would make it financially difficult, or if you are already in bankruptcy. Otherwise, payment plans, payment deferrals, or adjustments to past tax returns are likely.
Do I need to pay in advance for tax relief services?
Some legitimate tax relief companies may require you to pay the entire amount upfront, while others may only require a portion of the fee. It depends on what services the professional provides, and it also depends on your particular tax and financial situation. Upfront fees aren’t a red flag, but read your contract carefully to understand exactly what you’re getting for your money.
Can I negotiate with the IRS myself?
Yes, all negotiation options and tax debt relief options available to tax relief professionals are also available to you, the taxpayer. This ultimately means that you do not need professional help to receive relief. However, their services can be beneficial, as professionals can speed up the process, help you navigate tax laws, and help you build your case during negotiations.
