There are many reasons why clients with Tax issues with the IRS should avoid the use of Tax Resolution firms.
The “Tax Resolution Company“, a relatively recent development, has become a serious problem for consumers in our country and is not dissimilar to those companies that promise to solve your credit card debt, student loans, or help you save your home from foreclosure.
The Tax Resolution business model looks something like this:
- Tax resolution firms typically advertise heavily and/or may have a significant organic presence on leading search sites, offering to settle Federal tax obligations for a fraction of the amount owed. These claims are for the most part false
- Tax resolution companies typically claim to have tax attorneys, CPAs, and enrolled agents within their employ, when in many cases, no such personnel exist or professional licenses are merely “parked” for appearance purposes
- The principals of many tax resolution companies are rarely, if ever, disclosed in any organization document filed with either the state of incorporation or with any state where the Firm conducts business. Ownership is usually in the form of a limited liability company whose members include either other entities or individuals (spouses, relatives, etc.) who have nothing to do with the firm. There are two reasons for this. One is to limit liability. The second reason is to prevent the client from uncovering prior unfavorable history about the Firm’s undisclosed principals
- Tax Resolution Companies may also attempt to pass themselves off as either a non-profit consumer group or a Christian business. This is simply another tactic to suck the consumer in
- A taxpayer who calls the Tax Resolution Firm is generally greeted by a high-pressure salesperson, who has neither the tax knowledge nor the experience to appropriately assess a particular tax situation. This should be the first signal to run! These individuals will say anything to force you to part with your hard earned money since their compensation is strictly commission based
- Tax resolution firms take large retainers, typically $5,000-$10,000.
The settlement of any tax debt for less than its face value is based upon a myriad of factors, including but not limited to, the financial condition of the taxpayer and collectability, the number of years remaining on the statute of limitations for collections, and whether the tax debt was created based upon the IRS filing of substitute returns.
While reputable Tax Resolution Firms do exist, there are other reasons why hiring a reputable tax attorney is always the preferred choice.
- First, Enrolled Agents and CPAs cannot litigate tax cases. A reputable tax lawyer who is also a certified public accountant, and/or who has an LLM in tax law is the best combination of credentials to look for. Tax attorneys focus their practices on tax law and are trained in the art of advocacy. Most tax attorneys also focus their continuing legal education on relevant tax topics and actively participate in organizations focusing on tax matters.
- Next, attorneys are licensed professionals, and as such, are subject to disciplinary authority of their state bar. Tax Resolution Firms are not subject to any professional licensure or professional regulation. An aggrieved client’s only recourse is to file a complaint with the relevant State Attorney General’s Office, the Federal Trade Commission, or to file a lawsuit against the Firm.
- Finally, communications between a client and his attorney are privileged. This generally means that neither the attorney nor the client can be forced to divulge those communications, unless the privilege has been waived. No such privilege exists in the case of communication between an accountant, enrolled agent, or other Tax Resolution personnel and the client.
For the above reasons, any client looking to settle a tax debt for less than its face value should steer clear of any business operating under the Tax Resolution Firm model and hire a reputable tax attorney.
