If you have listened to talk radio, watched a football game, or browsed the internet over the past few years, chances are you have heard one of the ads. They tell you a story about how if you owe taxes to the IRS, they can help you settle with the IRS for a small fraction of what you owe. They promise that their services will relieve you of many nights of lost sleep and anxiety and that you will never have to talk to the big, bad IRS in order to get a great result. Sometimes they use friendly celebrities from famous sitcoms, others use paid testimonials, others tell you how they are rated with the Better Business Bureau or Angie’s List, and others use crazy animations to make their pitch. While these firms may be able to help some other their clients, they sell a resolution that is often not achievable. They also fail to mention that those types of cases represent a very small fraction of the issues a taxpayer might have and that some situations require counsel beyond their level of competence. (And many more are simply rip-offs (e.g., TaxMasters, JK Harris, and others).)
Tax problems are not one-size-fits-all and most are not easy fixes. When you hear one of these ads on the radio, they often are only addressing tax collection issues. In these cases, a person will owe the IRS a sum of money, has not been able to pay it for some time, and often does not have the means to pay it immediately. While some of these cases may result in wage garnishment, levies, liens, and potentially even criminal prosecutions, the vast majority of them do not. In general, if an individual affirmatively engages the IRS with a plan to pay off the amounts owed – either over the phone, internet, or by mail – the IRS will never take such steps. And, in cases where a taxpayer cannot afford to pay the entire balance (even over a period of years), IRS policies dictate that a taxpayer can qualify for other arrangements, such as a partial payment installment agreement, Offer in Compromise, or Currently Not Collectable status. Tax resolution firms seek these cases because the taxpayers are either desperate, uninformed, and some “favorable” resolution is available with little actual expertise or work.
In the latter types of cases, where a taxpayer can show that full payment of the liability would create a hardship, it is possible to settle for a fraction (or none) of what is owed. That said, such options will not be available to many taxpayers. Still, in many circumstances, the IRS will allow taxpayers to pay off the liabilities over a lengthy period of time and, so long as payments are made, will not seek wage garnishments or levies. Although not all tax resolution firms are created equal, many do not properly advise clients of the available options and, unfortunately, they may seek the option that has the best possible (even if unobtainable) or quickest resolution – depending upon what their fee arrangement provides. An experienced tax professional should discuss the particular details of your situation, your current and future financial situation, and a host of other factors – it is usually not possible to dictate a course of action and result simply based on the amount owed.
Further, while collection issues represent a considerable percentage of tax problems, there are a host of other issues a taxpayer may face which require consultation with a professional. One of the main problems faced by taxpayers is the assessment of additional tax and penalties. These issues can result from an audit, a notice from the IRS (stating that a return was incorrect), or from failing to file your taxes or pay your taxes in a timely manner. There are a number of ways that these issues can be approached, depending on the circumstances of a case. Options abound: administrative appeals, audit reconsiderations, penalty abatement requests, refund claims, Offer in Compromise – Doubt as to Liability, and even tax litigation. That is not even a comprehensive listing. What a particular situation justifies often requires knowledge of all available alternatives, the time, expense, and likelihood of a favorable result, and a consideration of collateral consequences. For instance, if it is possible to obtain an Offer in Compromise where you pay pennies on the dollar, but there is a legal justification for abating the assessment, would that be a favorable result? Or, on the other hand, if you qualified for an Offer in Compromise (and could pay pennies on the dollar to resolve an outstanding debt based on destitute financial condition), would it make sense to vigorously dispute the legality of large penalty if that would take tremendous time and/or expense? These are just a few of the considerations that might be overlooked by more inexperienced professionals. Moreover, a tax resolution firm located in a California or Texas may have no knowledge – or not even address – any state-level ramifications that can occur as a result of dealing with the IRS.
Bottom line: If you are experiencing tax issues, you need to do your homework. Some issues can be handled without representation, but many (if not most) cannot. Many issues may seem limited in scope, but may have side effects – tax or otherwise. For those matters that require representation, it is important to consult a tax professional with expertise. Tax resolution firms and some tax professionals may be well-equipped to handle the preparation of tax returns and can resolve small collection issues, but they often are not the same professionals that you need to handle complicated controversies with severe civil and criminal consequences involving substantial unfiled tax returns, undisclosed foreign accounts, fraudulent tax returns, appeals or litigation of tax assessment issues, or complex procedural issues, to name a few. If you find yourself facing a tax problem, you should consult an experienced tax professional right away to discuss your situation and formulate a strategy for successfully resolving your tax issues.
Brandon N. Mourges is an attorney in Rosenberg Martin Greenberg’s tax controversy practice group. For a free consultation, he can be contacted at firstname.lastname@example.org or 410.951.1149.