Recent news headlines warn that taxpayers should beware of “too good to be true” tax debt relief scams. The general rule of thumb is to watch out for a tax debt company that seems more concerned with how quickly you can pay, rather than provide you with tax relief. A legitimate tax relief company would ask you to go through a qualification process to obtain their services. You would have to fill out forms, meet for a consultation, and perhaps pledge to keep a detailed budget or take a course in debt management.
TaxMasters – the Texas-based tax company that frequently advertises on TV -- is currently under investigation for promising tax debt relief and failing to deliver. Allegedly, the company promised to reduce tax debt by up to 90 percent, stop wage garnishment, and end phone calls from debt collectors. None of these promises were delivered, but the company still made off with $8,000 in upfront fees. While new consumer laws protect people from being charged upfront by traditional debt management agencies, these laws do not apply to tax relief agencies.
Before working with a company, check the Better Business Bureau to see if a particular tax debt relief company has complaints filed against their firm. You may have heard of American Tax Relief, which advertises cross-country, but also has 165 complaints and an “F” rating on the BBB.org website. Often times, unscrupulous companies like this push fearful taxpayers into making rushed decisions, then later refuse to renegotiate the terms. Most often, they simply make promises they can’t live up to.
It’s best to obtain through a certified public accountant, tax attorney, taxpayer advocate service, or directly through the IRS. Be wary of companies that promise to cut your tax liability significantly. Unlike credit card debts, the IRS rarely ever reduces the amount of debt owed. Nine times out of ten, you will have to pay the full amount, but a tax debt representative can help you find a suitable arrangement with the IRS.