Tax Relief Scams: How to Avoid

Many unethical tax relief companies have popped up in response to a growing need for tax debt resolution services created by the recent economic downturn. News headlines highlighting tax relief scams make it clear that any taxpayer who is looking for tax resolution help should do the necessary research before hiring a company or individual advertising such services. While the assistance of a qualified tax professional can be an invaluable asset in negotiating with the Internal Revenue Service to resolve a tax debt issue, it is important to do the necessary footwork before deciding who to hire.

Tax Relief Scams in the News

Several tax relief scams that have made news headlines over the past couple of years are highlighted below:

• A tax settlement firm by the name of American Tax Relief of Beverly Hills was charged by the Federal Trade Commission with making false promises to consumers and cheating them out of more than $60 million. The company assessed up-front fees of up to $25,000 and then didn’t deliver the advertised tax relief. The District Court appointed a receiver for the assets of American Tax Relief and granted the Federal Trade Commission a temporary restraining order to shut down the company’s operations.

• The Attorneys General in Texas and Minnesota charged that most of the calls made to a toll-free number listed under the company name of Taxmasters were answered by sales people who made unrealistic promises. Their telemarketers apparently tricked customers into paying large up-front fees of anywhere from $1500 to $9000 for tax resolution services that were never delivered.

• The Superior Court of California ordered Roni Deutch, who calls herself the Tax Lady on late night television commercials, to reimburse dissatisfied customers who were billed $1600 to $4000 for tax relief they never received. The Attorney General’s restitution claim for close to $34 million against Roni Deutch and her company, Roni Deutch A Professional Tax Corporation, is currently awaiting trial.

Protection from the Government

To protect consumers from tax relief scams such as those described above, the Federal Trade Commission passed a new regulation, effective October 27, 2010. The regulation, 16 CFR Part 310, makes it illegal for a tax debt relief service to misrepresent itself and states that fees for tax settlements cannot be collected until certain requirements are met. Specifically, the new regulation states that no payments can be collected by a tax relief company until there is a tax settlement agreement between the consumer and the creditor and at least one payment to the tax creditor has been made as a result of the negotiated agreement.

Although 16 CFR should go a long way toward preventing tax resolution scams by prohibiting the collection of up-front payments, it contains a couple of potential loopholes. First, the regulation applies only to for-profit companies. This means that the Internal Revenue Service will have to be particularly vigilant in scrutinizing not-for-profit tax debt resolution operators that may pop up to circumvent the new regulation. Secondly, it is still possible for tax resolution companies to take credit card information and prior authorizations and then level unauthorized charges. The taxpayer will have to be watchful of this form of abuse and immediately object to the credit card company if an unwarranted charge appears.

Doing the Footwork

The bottom line is that any taxpayer who is looking for help with a tax debt should do the necessary footwork to make sure the person or company they are considering actually has the qualifications they are advertising. Reputable representation for tax debt settlement is definitely available but unethical agencies have popped up as well, making it important to do the necessary research before selecting assistance. While the help of a qualified tax settlement professional can be an invaluable asset in attempting to resolve any type of back tax issue, the selection a reputable tax professional can be a difficult task in itself. It is important to verify any advertised credentials before hiring because many individuals and companies who advertise tax settlement services are actually marketing agents and salespeople with no professional qualifications. Tax law is so complex and the policies and procedures of the Internal Revenue Service are so complicated that it takes an individual who is both knowledgeable and experienced to successfully negotiate a tax settlement agreement.

Some things to look for:
• Select a well established individual or firm, one that is likely to still be around to answer questions after the return has been filed.
• Select an individual or firm with a verifiable physical address.
• Search the Internet to make sure there are no registered complaints about the professional under consideration.
• Check out available references, reviews and ratings from the local Better Business Bureau.
• Choose a professional who specializes in tax settlement issues. Such an individual will be the most familiar with all of the tax settlement options available and will have experience in negotiating tax settlement contracts with the Internal Revenue Service.
• Select a tax settlement professional with a verifiable licensing history. Certified Public Accountants, Enrolled Agents and attorneys are the only individuals who can represent taxpayers before the Internal Revenue Service in matters other than returns they have actually prepared.
• Select a tax settlement professional who is affiliated with a professional organization. Such organizations hold their members to a code of ethics and provide opportunities for continuing education.

Some things to avoid:
• Avoid tax settlement professionals who make extravagant promises about the percentage of tax debt they can eliminate.
• Avoid tax settlement professionals who base their fees on a percentage of the amount of the settlement they obtain.
• Avoid tax settlement professionals who have no verifiable licensure or physical address.
• Avoid tax settlement professionals who are unwilling to sign the returns and agreements they prepare.
• Avoid tax settlement professionals who have negative reviews, a history of registered complaints or low ratings with the local Better Business Bureau.

Any taxpayer who is looking for tax settlement help should adhere to guidelines such as those listed above to insure that the tax resolution service they are considering is qualified and reputable. Although the government has provided some protection in the form of 16 CFR, it is also important for each taxpayer to do their own research before selecting professional representation. The assistance of a qualified tax settlement specialist can be a huge asset in resolving a tax debt, but unethical agencies are still out there and must be weeded out to avoid a potential tax scam.

If you are in need of any type of tax settlement services, the tax specialists at Professional Tax resolution can provide you with the help you need. Because our professionals are familiar with all of the available tax settlement options and are experienced at negotiating tax settlement agreements with the Internal Revenue Service, we can ensure that you will receive the maximum tax advantage for your specific financial situation. For more information about our tax settlement services, please call us at (877)-889-6527 to receive a free, no obligation consultation.