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Navigating the Offer in Compromise – Avoid Tax Resolution Firm Scams

If you’ve ever turned on a radio or TV, you’ve probably heard advertisements for tax resolution firms.  Typically these ads will feature an attorney or his spokesman telling you all about how his firm has saved clients millions of dollars by settling their tax debts with the IRS for pennies on the dollar.  If you think this sounds too good to be true, you’re right!  Many of these companies aren’t what they promise they are and lots have been called “scams.”  One high-profile example is the JK Harris Company, which was sued into bankruptcy by the attorneys general for nearly half the states for deceptive advertising and business practices.  If you have a tax situation that needs to be resolved, it’s important to watch out for certain ‘red flags’ when selecting a firm to assist you.

How do tax resolution scams work?

Every case is a bit different, but in general the problem with these companies is that they over-promise and under-deliver, and then bill heavily for it.  Most tax resolution firms promise to resolve tax debts ‘for pennies on the dollar’ by negotiating what is called an “offer in compromise.”  An offer in compromise is essentially a settlement agreement with the IRS where the taxpayer agrees to pay a certain amount in return for the IRS forgiving any remaining debt.  The problem is that there are not many reasons the IRS would agree to accept payment of less than the full amount of taxes owed, despite what tax resolution firms want you to believe.

Instead, tax resolution firms use all kinds of tricks to take clients’ money without actually resolving their tax debts.  One common business practice is to require the client to deposit a large retainer up front, sometimes as high as $10,000 or more.  The firm will then send the client lots of paperwork with made-up deadlines, and if the client fails to return the documents on time the firm closes the case and refuses to return the deposit.  According to Forbes magazine’s Stephen Dunn, some of the largest tax resolution firms have “F” ratings from the Better Business Bureau.  The majority of their clients either cancel their contracts or have their contracts terminated.

How can I avoid these scams?

There are certain red flags to watch out for when looking for help resolving your tax debts.  Some of those warnings include:

  • Offering to resolve your debt for “pennies on the dollar”

Most tax resolution firms claim they will be able to settle your debt for much less than you owe.  Although sometimes this is an option if you have a very good reason, in the vast majority of cases the IRS will not be willing to accept such a settlement, so be wary of firms claiming that most of their cases settle for very low amounts.

  • Other claims that seem too good to be true

Tax resolution firms also love to make claims and promises that turn out to be exaggerations or downright lies.  For example, some firms will claim that they’ve never had a settlement turned down.  Others will make it sound like you’ll get a whole team of attorneys and tax professionals working on your case for just a few hundred dollars.  If you hear a claim that sounds truly amazing, be suspicious.

  • Large retainers with no guarantees

You should be careful about giving any money to a tax resolution firm without being very sure of what you’re getting in return.  Firms asking for large deposits up front without guaranteeing in writing that your tax problem will be resolved should be a big red flag, especially if the firm is pushing you to borrow the money from friends or family because “it will be worth it in the end.”

If you’re having trouble with your taxes, some of these advertisements can sound like miraculous solutions to your problems.  Although it’s possible they might be, you should be very careful when choosing a firm to help you.  A quick Google search and check with the Better Business Bureau is a good place to start.  But the safest way to be sure you’re not getting swindled is to use an established, experienced firm.

We pride ourselves on helping our clients successfully resolve their tax issues in ways that are reasonable and acceptable to our clients, so if you have a problem with the IRS call us

contact us today to schedule a consultation.

Posted in: Offer In Compromise

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