If you owe IRS taxes, and a federal tax lien has been filed, you’ve likely been inundated with calls from telemarketers and tax resolution firms offering their services. My advice is to proceed with caution when choosing a tax resolution company to deal with your tax debt. It is your finances and livelihood that are at stake, not theirs!
The following information will help guide you as you consider a tax resolution company.
1. Do Your Homework: Research the credibility of the company. Check their BBB rating, how long they have been in business, consumer complaints, etc. Most of this research can be done online. While 1 or 2 online complaints may not be an indication of poor service, many complaints can form a pattern of poor customer service. Ask for references so you can talk to former clients.
2. Do You Work with a Licensed Professional?: Only a licensed Attorney, CPA, or Registered Agent can negotiate with the IRS on your behalf. Many companies have clients who work with unlicensed professionals, and it may be difficult to correspond with a tax professional in your case.
3. Identify all Costs: Ask how much it will cost to settle your case. Many companies start with an up-front fee, claiming that no other costs are necessary, only charging extra to get the job done. Often companies use the “bait-and-switch” method, using a fixed fee up front, and then telling the client that they have “billed” through the clerk, charging an hourly fee. Ask if the hourly billing rate is used by the company. If so, it is an indication that you may be experiencing this scenario. This is not an acceptable method of billing clients under IRS Circular 230 or State Bar association. Be sure to have as specific an agreement as possible to ensure that you are protected from future requests for additional fees. Don’t be left with half-finished work and no alternative but to pay extra to have your case resolved. Also, don’t be afraid to split expenses over several months. Many companies will push 100% of the cost up front. If the company won’t split costs fairly, it may be an indicator of future problems. Most cases take several months, so there’s no reason why you can’t pay the company a few months while the work is being done.
4. What Is Expected of You?: Find out exactly what your obligations will be. Often, you will need to provide financial documentation or other information to get your case resolved. Many companies will charge an additional fee if you do not provide this information in time. Make sure you know what is expected of you, and that you are ready to participate in the process. Otherwise, you may be wasting your money, thinking that the firm is working on your case, when in fact it is waiting for information from you and nothing has been achieved.
5. Will the Company File Lost Tax Returns?: Make sure you are clear whether or not the company will prepare your tax return for the agreed-upon fee. Many companies don’t prepare tax returns, leaving you responsible for filing missing tax returns or hiring an accountant. If you have a tax return that hasn’t been filed, this is usually the first step to settling your tax obligations. If you have limited funds, you may want to pay an accountant first to prepare your return, so you know what is owed, before hiring a tax resolution firm.
6. Keep the Lines of Communication Open: Determine who will be your main point of contact at the company and how you will communicate (via email, phone, etc.) Make sure that you can reach your representative and receive a timely response. Do not accept unanswered phone calls or deal with unqualified assistants. Determine that you will be able to work directly with your representative and answer your questions. After all, it is your money and livelihood that is at stake.
7. Ask to Speak with an Actual Representative: Often, many companies use telemarketers to call people and sell company services. Many of these telemarketers are unlicensed and/or unqualified, with no real experience working with the IRS or managing client cases. Imagine these telemarketers selling you a payment plan, and have no practical experience in tax settlement! Ask to speak with an attorney, CPA, or an actual registered agent to adequately answer your questions and discuss your case strategy.
8. Have a Plan: In your free consultation, you will find out strategies to deal with your obligations. However, it is very difficult to focus on a particular strategy without knowing all the different factors involved in your case. Many companies will sell you on a payment plan, only to then sell you on an Offer-in-Compromise settlement, and charge an additional fee. Make sure you have a definite plan that will be effective for completing your taxes.
9. Hidden Costs: Coming back to costs, I cannot stress enough identifying all the costs that will be involved. Most employees at tax resolution firms work on a sales commission, including attorneys, CPAs, or registered agents. That is, the more money employees make, the more they are paid. Ask for specific reasons why additional fees will be incurred and request that these reasons be put in writing. Protect yourself from hidden fees and charges.
10. Don’t Fall for Guaranteed Results: There are no guarantees in life. Remember that. No company can guarantee your results, even remotely. The IRS makes the decisions, not your tax representative. Many companies will tell you that they can pay off your debt for a percentage of your debt, or that they can waive a fine. It is possible to complete “penny on the dollar”, but no company can guarantee this result in any particular case. Each case is different depending on the circumstances. Ask for references from former clients, so you can talk to them about their experiences. Remember though, referrals are a small percentage of a company’s clients, often with the best results. So take reference with a grain of salt, not all cases go smoothly or give good results.
