IRS form 1040It sure can be intimidating to have to deal with Uncle Sam if you have significant tax debts. Few people feel equipped to take on the IRS alone. But be careful who you ask for help. You might just make your situation worse. Tax-resolution scams are on the rise as unethical companies peddling tax-relief services prey on people who owe back taxes.

"With tax-relief firms getting sued by state authorities and making headlines for cheating distressed taxpayers out of thousands of dollars in up-front retainer fees, it's more important than ever for people to know how to protect themselves from firms who misrepresent their ability to solve IRS problems," says Michael Rozbruch, a certified public accountant, certified tax-resolution specialist and founder of Tax Resolution Services.

At the request of the Federal Trade Commission, a federal judge recently halted a national operation, American Tax Relief, that allegedly bilked consumers out of $60 million by falsely claiming it can reduce a person's tax debt. The company's California business license was suspended last year because the firm didn't pay its own taxes, the FTC alleges. The FTC wants the company to pay restitution to victims.

A 99% Success Rate -- or 90% Failure Rate?

American Tax Relief charges up-front fees of $3,200 to $25,000 for its services. The company's ads on TV, radio and the Internet include a toll-free number to call for a "free consultation." After speaking briefly with a commission-based salesperson, who is supposedly a "tax consultant," virtually all consumers are told that they qualify for a tax-relief program and that American Tax Relief can help them significantly reduce their tax debts, the FTC complaint alleges. Meanwhile, the company's owners were living large with goodies like a Ferrari and $3.4 million house.

Earlier this year the California attorney general sued "tax lady" Roni Deutch for more than $34 million, alleging that her law firm regularly violates state law by making false promises that it will help people resolve disputes with the IRS. She advertises a success rate of up to 99%, yet successfully reduces the amount of money her clients owe in just 10% of cases, the lawsuit says.

The Texas attorney general charged Houston-based TaxMasters and its CEO Patrick Cox with multiple violations of the Texas Deceptive Trade Practices Act and Texas Debt Collection Act. Allegedly, TaxMasters unlawfully misled customers about its service contract terms, failed to disclose its no-refunds policy and falsely claimed that the firm's employees would immediately begin work on a case, despite the fact that TaxMasters didn't start work until customers paid in full for services, even if that delayed response meant taxpayers missed significant IRS deadlines, according to the state's enforcement action.

Such practices matter when one out of six Americans has a tax problem. "More than 26 million people need to know how to get legitimate help with their tax debt," says Rozbruch.

What You Need to Know Ahead of Time

"If something sounds to good to be true, it probably is. Many tax-relief agencies make claims similar to what drew the FTC's attention to the debt settlement industry -- settling debt for 'pennies on the dollar,'" says Christopher Viale, president and CEO of the nonprofit Cambridge Credit Counseling. One way to protect yourself from an unethical tax-resolution firm is to be leery of any company that's likely overstating its success rate or misrepresenting their staff's professional skills. Look for a Certified Tax Resolution Specialist firm that puts potential clients through a rigorous, in-depth interview process to find out if they qualify for an IRS tax settlement, advises Rozbruch.

Second, beware of firms that guarantee results without even seeing your information. A hallmark of a tax-resolution scam is someone who promises you a specific outcome without an in-depth review of your specific tax matter.

Know exactly what you're signing before releasing your money. Never give a credit card number over the phone. Have the tax-relief company send you the documentation and the forms it wants you to sign, prior to putting up your cash. "This gives you a chance to stop and think about additional questions you may have, and certainly you need to read what you are signing," advises Karla Dennis, CEO of Cohesive, a tax-preparation, consulting and representation firm.

Questions to Ask

Determine who you're dealing with. Jeff Staley, managing partner of Freedom Tax Relief, highlights a few questions you should ask. How long has the company been in business? How many customers has it served? Find out if the company and its own employees are those who'll actually provide service through the life of the program, or will they contract out to others once you're enrolled. Will they let you speak to the tax professional who'll be handling your matter?

What's the background of the company's management team? Do a Web search of the company, check with the Better Business Bureau and do a little digging on the Ripoff Report and to see if the firm you're considering has a less-than-stellar past.

Ask about fees, which should never be a percentage of savings. "A fee should be a reasonable flat or hourly rate based on the work that needs to be done," says Dennis. Those fees should be clear and in writing. You should not have to pay the entire tab up-front.

Pay the IRS a Visit

It's important that you get it right with Uncle Sam. "Unpaid taxes can lead to wage garnishment, incarceration, civil penalties and a host of other unpleasant outcomes. If you don't think you can be your own best advocate, stick with professionals like tax attorneys, enrolled agents and CPAs when trying to figure out the best way to repay taxes," says Viale.

If you don't want to hire someone, you can speak with the Taxpayer Advocate Service (TAS), an independent organization within the IRS that will work with you for free to resolve your issue. They stay with you until the problem is resolved.

It's important to call and visit the local IRS office to discuss tax issues. There, the IRS may ask you to complete a financial statement, and based upon their review of it, may grant some form of relief. That can be an "Offer in Compromise" to establish a reasonable payment agreement with you, says Steven Hoffman, an enrolled agent, who worked for the IRS for 15 years.

An installment agreement is generally available to people who owe less than $10,000 and can't pay their tax debt in full at one time. You pay an agreed-upon monthly amount until you polish off the debt. An Offer in Compromise (OIC) lets you permanently settle your tax debt for less than the amount you owe. However, you're eligible for this only after other payment options have been exhausted and your ability to pay has been reviewed by the IRS. This process can take six to 10 months.

It's Best to Be Nice

On occasion, the IRS may offer a penalty abatement to people who haven't paid their taxes because of a special hardship. If you meet very narrow criteria, the IRS may agree to forgive the penalties. An interest abatement is even more limited and is rarely provided.

What you don't want to do is misrepresent your situation in any way. The IRS has the power, and the means, to investigate your finances and could certainly choose to do that, says Viale. Don't get angry at your least favorite offspring of Uncle Sam. "Be as polite and cooperative as you can in any request for a reduced payment. Being nice can go a long way," says Viale. If your only reason for going it alone is to save a few dollars, don't cheat yourself by being cheap. "Invest in advice from the right person to get you to the right result," says Viale.

Adds Viale: "While we don't want to say that no tax-relief firms are legitimate, tax attorneys, a certified public accountant or an enrolled agent should help you seek settlement with the IRS." Still, for his "best advice," Viale says bluntly: "Don't engage with a tax-settlement company."

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I have a tax question,If a person files bankruptcy can he claim the interest that the irs is charging you on old taxes?

November 07 2010 at 7:02 PM Report abuse +1 rate up rate down Reply
3 replies to larry's comment

What we need is a "taxpayer bailout." If the federal government is willing to provide the money that I need to pay taxes, then I'll give them just as much as they're willing to provide for. They did this for GM, so I think that it would go a long way, to help individuals.

November 07 2010 at 3:45 PM Report abuse +1 rate up rate down Reply


November 07 2010 at 3:24 PM Report abuse -1 rate up rate down Reply

For anyone having tax difficulties with the I.R.S., I suggest two paperback books authored by Daniel J Pilla, published by WINNING Publications Inc. These booklets will inform you of the processes used to determine the final amount to be collected and how reductions are arrived at, and if OIC is possible. I read both books prior to contacting an accountant licensed to deal with the I.R.S. and understood what the accountant was attempting to do and why. My debt including penalty, fees and interest was approx. $ 170,000.00 from operating a small business with 2 -3 employess. My accepted OIC came to approx. $ 55,000.00 paid over an eight year period.

November 07 2010 at 11:52 AM Report abuse +1 rate up rate down Reply

I went from trying to do a Chapter 13 bankruptcy to take care of my taxes to covnerting that to a chapter 7 and then dealing with the tax debt myself. I used to see these ads and wonder if they could really help a person, but eventually got it all taken care of with one or two really helpful people at the IRS (several were not so helpful......but guess that can be true of any company). This is a very good article to guide anyone else out there with these kinds of issues. I do agree with graylock190 about the limits actually being different. I owed $20,000, that was for several years of owed taxes (which makes everything a little trickier than if it was all from one year) and was able to get an installment agreement with a pretty reasonable payment schedule.

November 07 2010 at 11:11 AM Report abuse +1 rate up rate down Reply

I also spent over $3000 with JK Harris and got nothing but 2 yrs of frustration and instead of saving money, ended up paying IRS an extra $10.000 because of them. Go to and you'll see countless complaints about them and tips on getting your money back. Deal direct with IRS. They were very kind to me but we still need fairtax to get rid off the unnecessary and very costly 200.000 police force of the IRS and the parasite politicians that go with it.

November 07 2010 at 9:49 AM Report abuse +1 rate up rate down Reply

Being the IRS is not, I repeat, IS NOT an official department or division of the U.S.Government, how did they get so much power? The IRS is merely a collection agency for the government just like any other collection agency. They use the same tactics as every other collection agency who can also do all the things the IRS can and does do in order to collect a debt. If I understand it correctly, the IRS main office isn't even in the United States, but rather located in Puerto Rico. Of course to make everyone think they are in Washington D.C., they have their largest office there with branches scattered around the country.

November 02 2010 at 9:49 PM Report abuse rate up rate down Reply
1 reply to Albert's comment

How can that e verified?

November 07 2010 at 1:16 PM Report abuse rate up rate down Reply

As a tax practitioner for more than 5 years and having assisted well over 500 taxpayers with their past due tax liabilities, I have to congratulate you on your well written article with one exception. An installment agreement is available to any tax payer not just those that owe less that $10,000! If you owe less that $25,000 it is a Stream Lined Agreement in which there is no Financial Affidavit required. If it's over $25,000 you'll be required to complete the appropriate IRS Form 433 I(there are 3 different versions). In some cases an Installment Agreement will allow the Taxpayer to pay less than the full amount owed. This is called a "Partial Payment Installment Agreement" and can be easier and less expensive to enter into that and Offer in Compromise. OH, an Offer in Compromise can take from 6 months to 2 years to settle!!! To all those that read this article and wonder why you would pay a firm to assist you with your IRS debt, let me remind you, the IRS is a debt collection agency and will attempt to collect the most you can "afford" to pay. A legitimate Tax Resolution company will attempt to get you into a payment that you can really afford by using the laws in your favor, not in the IRS's favor! To GREAT ONE - as a tax practitioner, I agree, we need a national sales tax. You buy something, you pay tax, you don't and you save money! No more federal withholding, you get to take all most your entire gross pay home. What a novel idea!

November 02 2010 at 9:31 PM Report abuse -1 rate up rate down Reply

you are right the IRS will work with you and they will be fair United Tax Relief took me for 2500.00 and did nothing I called the IRS and got all resolved in about 30 minutes

November 02 2010 at 8:24 PM Report abuse +1 rate up rate down Reply
1 reply to mmctighe865's comment
Joe Mastrianocpa

If you have had problems with an IRS tax relief company, call me. I have handled 1,000's of tax cases over 30 years and I have an A+ rating with the BBB. Google the Killer IRS or call me at 713-774-4467

January 29 2014 at 12:26 PM Report abuse rate up rate down Reply

I don't understand why people pay JKHarris and the other tax assistance firms. You can basically do it for free. Access the website and select "forms and publications" and search for "form 911" (I'm not kidding). This form requests free taxpayer advocacy service. I've worked with these people. They are fair and independent of the IRS. They report directly to Congress.

November 02 2010 at 7:57 PM Report abuse +1 rate up rate down Reply