#tax, #irs, #internal #revenue #service, #companies, #resolution, #money, #tax #bill, #scams, #om4qdii, #consumers, #taxpayers, #width, #by #tina #fineberg, #ap, #usatoday, #height, #tax #preparer, #front, #spikes, #federal #+ #trade #+ #commission, #roni #deutch
Some tax-resolution companies are scams
When hiring any type of tax professional consumers should investigate how reputable the company or individual is.
You should apply the same skepticism to ads from companies that claim they can make your tax debts disappear. The ads, which also flourish on the radio and the Internet, typically claim that good folks who run these companies will defend you against those big bad bullies at the IRS .
While there’s no question that the IRS can make your life miserable, some tax-settlement companies could compound your tax woes, according to lawsuits filed by state and federal regulators. Some recent examples:
In September, the Federal Trade Commission charged American Tax Relief of Beverly Hills with misrepresenting its ability to provide tax relief for thousands of customers. The FTC said most customers never got the promised tax relief, even though they paid “exorbitant fees.” The FTC alleged that the company cheated consumers out of more than $60 million, which enabled the company’s owners to amass an impressive collection of luxury cars.
STORY: Tips for taxpayers in case the IRS calls
STORY: Which tax records should you save and which can you shred?
STORY: Deficit-reduction efforts threaten tax breaks
VIDEO: American Tax Relief ad
Officials with American Tax Relief couldn’t be reached for comment.
Attorneys general in Texas and Minnesota have filed lawsuits against TaxMasters and its chief executive officer, Patrick Cox, for allegedly misleading customers about its ability to reduce their tax bills. In a lawsuit filed in December, Minnesota Attorney General Lori Swanson charged that most of the “tax consultants” who answer calls to TaxMasters’ toll-free number are sales representatives who often make unrealistic promises “in order to dupe consumers into paying thousands of dollars in advance fees.”
TaxMasters declined to comment on the lawsuits.
Earlier this month, a California superior court froze the assets of Roni Deutch, a tax attorney who promotes herself as the “Tax Lady” in late-night television commercials. The action came after California’s then-attorney general, now governor, Jerry Brown charged Deutch with violating an earlier court order that directed her to repay dissatisfied customers. Last year, the attorney general’s office charged that Deutch misled customers when she claimed she could help 99% of her clients resolve tax disputes with the IRS.
VIDEO: Roni Deutch press conference
In a statement on her website, Deutch called the complaint “election year politics” and said she was cooperating with the attorney general’s office. Last week, she said she planned to file for bankruptcy and closed her office.
Red flags to watch for
There are reputable tax professionals who can help you resolve problems with the IRS, and in some instances, reduce your tax bill. How to identify those that aren’t looking out for your best interests:
Large upfront fees and high-pressure sales tactics. Consumers who hired American Tax Relief services were charged fees ranging from $3,200 to $25,000, according to the FTC. Fees for TaxMasters range from $1,500 to $9,000, according to the Texas attorney general, while Deutch’s customers were charged $1,600 to $4,700.
American Tax Relief customers were required to make their payments over the phone, either with their credit card or with debits from their bank accounts, the FTC says.
Consumers who call TaxMasters for a “free consultation” get few details about the service unless they agree to pay a fee, according to the complaint filed by the Texas attorney general’s office. According to the lawsuit, customers who request a written description of services are told that it’s not possible to generate the documents until they make a payment.
No face-to-face consultation. If a tax settlement company insists on conducting all business by phone, the company is probably more interested in signing up lots of customers than providing good service, regulators say. Deutch’s firm, for example, conducted all business by phone, even for customers who lived near the firm’s office in Sacramento County. according to the California attorney general’s office.
Guaranteed results. Beware of any tax-settlement company that promises it will reduce your tax debts. While there are legitimate IRS programs for taxpayers who can’t pay, only the IRS can determine whether you’re qualified.
Similarly, you should avoid any company that claims it can stop IRS collection efforts. Consumers who contacted Deutch’s firm were told that once they gave it power of attorney over their tax debt, the IRS would no longer be allowed to collect on those debts, according to the California attorney general’s complaint. Those customers were subsequently hit with wage garnishments, bank levies and federal tax liens, the complaint says.
No easy solutions
Tax-settlement companies often promote their inside knowledge of IRS tax-relief programs. What they often don’t tell you is that the bar to qualify for some of these programs is extremely high. The most common tax-relief programs:
Offer in compromise. Under the program, the IRS agrees to accept less than you owe. But to obtain a permanent reduction in your tax debt, it’s not enough to show the IRS that you can’t pay your tax bill. You must also prove you’ve exhausted all of your financial resources and have little hope of raising money in the future.
“People see these TV ads and get the impression you can dicker with the IRS,” says Steven Baker, director of the FTC’s Midwest region. “The reality is they’re going to take almost every asset you’ve got.”
Penalty abatement. If you’re behind on your taxes, you probably owe the IRS late-payment penalties, in addition to interest. In some cases, the IRS will reduce or eliminate those penalties, says Danny Snow, a certified public accountant in Memphis.
However, the IRS won’t grant penalty abatement without reasonable cause, Snow says. For example, a widow who filed her tax return late because her husband died shortly before April 15 might qualify for penalty abatement, he says.
You don’t need to hire a tax-settlement company to seek penalty abatement, Snow says. If you believe you can show extenuating circumstances, you can apply on your own or ask your tax preparer to file a request on your behalf, he says.
Installment agreements. Under an installment plan, you make monthly payments on your tax debt for up to five years. But this is something you can do on your own. The fee to set up an installment plan is $105, or $52 if you agree to have payments automatically debited from your bank account. Approval is automatic for taxpayers who owe $10,000 or less and are in good standing with the IRS.
If you can�t pay
Tax-settlement companies have flourished during the economic downturn because a lot of desperate people have tax bills they can’t pay. Sadly, though, victims of unscrupulous tax relief firms have ended up even deeper in debt.
If you owe the IRS money, you have options:
Talk to a CPA or enrolled agent who has experience dealing with IRS collection issues. If you already have a tax preparer, he or she may be able to help you or refer you to someone who can.
If you can’t afford to hire a tax professional, you may qualify for a Low-Income Tax Clinic. To find one near you, go to the website for the IRS Taxpayer Advocate, irs.gov/advocate .
If you have tried unsuccessfully to resolve your problems with the IRS, you may be able to get help from the Taxpayer Advocate’s office. For more information, go to irs.gov/advocate. or call 877-777-4778.