If you owe the IRS taxes, and a federal tax lien has been filed, chances are that you are being flooded with calls from telemarketers and tax resolution firms offering their services. My advice is to proceed cautiously when choosing a tax resolution firm to handle your tax debt. It’s your finances and livelihood at stake, not theirs!
The following information will help guide you when considering a tax resolution firm.
1. Do Your Homework: Research the credibility of the firm. Check their BBB rating, how long have they been in business, consumer complaints, etc. Much of this research can be done online. While 1 or 2 online complaints may not be indicative of poor service, numerous complaints may establish a pattern of poor customer service. Ask for references so you can speak to former clients.
2. Are You Working with a Licensed Professional?: Only a licensed Attorney, CPA or Enrolled Agent can negotiate with the IRS on your behalf. Many firms have clients work with unlicensed professionals, and it can be difficult to have any correspondence with the tax professional on your case.
3. Identify all Fees: Ask what the fees will be to resolve your case. Many firms start with an up-front fee, claiming that no other fees will be required, only to charge additional fees to complete the work. Often firms use a “bait-and-switch” method, using a flat fee up front, and then telling clients that they’ve “billed” through the retainer, by charging an hourly fee. Ask if an hourly billing rate is used by the firm. If so, this is an indication that you may encounter this scenario. This is not an allowable method of charging clients under either IRS Circular 230 or State Bar associations. Be sure to have any agreement be as specific as possible to ensure that you are protected from future requests for additional fees. Don’t be left with half-completed work and no alternative but to pay additional fees for your case to be completed. Also, don’t be afraid to split the fee over several months. Many firms will push for 100% of the fee up front. If the firm won’t reasonably break up the fee, it may be an indicator of future problems. Most cases take several months, so there is no reason why you shouldn’t be able to pay the firm over several months as work is performed.
4. What is Expected of You?: Find out exactly what your obligations will be. Often, you will need to provide financial documentation or other information to pursue a resolution on your case. Many firms will ask you for additional fees if you do not provide this information timely. Be sure you know what is expected of you, and that you are prepared to participate in the process. If not, you may be wasting your money, thinking that the firm is taking care of your case, when actually the firm is waiting on information from you and nothing is being accomplished.
5. Will the Firm File Missing Tax Returns?: Be sure you are clear whether or not the firm will prepare your tax returns for the agreed upon fee. Many firms do not prepare tax returns, leaving you with the responsibility of filing the missing tax returns or hiring an accountant. If you have unfiled tax returns, this is typically the first step to resolve your tax liabilities. If you have limited funds, you may want to pay an accountant first to prepare your returns, so you know what is owed, before hiring a tax resolution firm.
6. Keep the Lines of Communication Open: Determine who will be your main point of contact at the firm and how you will communicate (via email, phone, etc.) Be sure that you will be able to contact your representative and receive a timely response. Don’t settle for unreturned phone calls or dealing with an unqualified assistant. Establish that you will be able to work directly with your representative and have your questions answered. After all, it’s your money and livelihood at stake.
7. Ask to Speak to an Actual Representative: Often, many firms use telemarketers to cold-call people and sell the firm’s services. Many of these telemarketers are unlicensed and/or unqualified, with no actual experience working with the IRS or managing a client’s case. Imagine, these telemarketers are selling you on a payment plan or settlement, and have no practical experience in tax resolution! Ask to speak to an actual attorney, CPA or enrolled agent to sufficiently answer your questions and discuss your case strategy.
8. Have a Plan: In your free consultation, you will be sold on a strategy to address your liabilities. However, it is very difficult to focus on a particular strategy without knowing all of the different factors involved in your case. Many firms will sell you on a payment plan, only to then sell you on an Offer in Compromise settlement, and charge an additional fee. Be sure you have a definitive plan that will be effective to resolve your taxes.
9. Hidden Fees: Getting back to fees, I cannot emphasize enough to identify all fees that will be required. Most employees at tax resolution firms work on a sales commission basis, including the attorneys, CPAs or enrolled agents. This means, that the more money the employees generate, the more they are paid. Ask for specific reasons why additional fees would be charged and request that these reasons be put in writing. Protect yourself from hidden fees and charges.
10. Don’t Fall For Guaranteed Results: There are no guarantees in life. Remember that. No firm can guarantee you results, even remotely. The IRS makes decisions, not your tax representative. Many firms will tell you they can settle your debt for a percentage of what’s owed, or that they can get penalties waived. Settling for “pennies on the dollar” is possible, but no firm can guarantee this result for a particular case. Each case is different depending on the circumstances. Ask for references from former clients, so you can speak with them to hear about their experience. Remember though, references are a small percentage of a firm’s clients, often with the best results. So take references with a grain of salt, not all cases go so smoothly or have favorable results.