You’ve seen the ads. You’ve heard the strong words leveraged against them. You’ve silently assented or nodded your head in agreement, perhaps muttering your approval under your breath.
Perhaps you’ve heard some of these actual juicy catch-phrases:
“If you choose to go it alone and handle the IRS Audit yourself, you will get creamed.”
“The Internal Revenue Service is the most brutal collection agency on earth.”
“To collect tax debt, the IRS has multiple weapons it can use to devastate your financial and personal life.”
Are we talking about the IRS, or al qaeda?
Third party tax resolution firms are all over the radio, TV and now, more than ever, have established a strong internet presence. Within the first few pages of an IRS Google search, you will slowly trespass from the legitimate government site to a host of debt “specialists” all salivating to get your business.
Of course, these companies are eager to strap on the flak vest and go to war on your behalf, once they have pocketed some down payment from you for good measure.
So, can these companies really do all they say? Can they present you with their so-called “pennies on the dollar” tax settlement? Can they lift wage levies, remove Federal Tax Liens, reduce penalties and interest and make the IRS go away?
Perhaps. But so can you.
There is absolutely no special type of resolution that the IRS affords any third party tax attorney, CPA or anyone else that is not available to a taxpayer directly. The IRS does not offer different types of programs to mediators who are paid to respond on your behalf.
But these companies would make it seem like it is utterly impossible for anyone to try to deal with the Goliath-like IRS on their own, without having the David-like fortitude of these purported experts on your side with their sling and bag of stones.
Phrases like those mentioned above play into the image that the IRS will swoop in and claim your first-born, your beater car, the perishables in your fridge and your 12-inch vinyl collection if you don’t turn over the handling of your indebtedness to those in the know.
However, it’s the debt resolution companies that have been in the fryer lately. Check out recent lawsuits filed against JK Harris, American Tax Relief, and the Tax Lady – Roni Deutch, just to name a few.
In fact, the Federal Trade Commission has issued specific warnings against these penny-on-the-dollar hawkers.
In a written statement issued in October 2010, entitled Facts for Consumers, the FTC said the following:
“Now imagine hearing about a company that promises to reduce – or even erase – your debt for pennies on the dollar. Sounds like the answer to your problems, right?”
Wrong. The article talks about these "debt settlement companies” who “say they'll negotiate with your creditors to reduce the amount you owe.” In many cases, the FTC points out, these companies have no sway with any of your creditors, IRS included, and warns that it could be months, or even years until they actually negotiate with your creditors. Meanwhile, IRS penalty, interest and enforcement actions mount.
The FTC recommends you “consider other people's experiences with debt settlement companies. One way to do that is to enter the company name with the word ‘complaints’ into an Internet search engine. Read what others have said.”
If you do owe a large sum to the IRS, and a Notice of Federal Tax Lien has been filed, which has made your debt public notice, you will be inundated with offers by these companies who have now identified you as a potential client. Be cautious!
The FTC notates the following “Red Flags” to be aware of. You should avoid doing business with any company that promises to settle your debt if the company:
- charges any fees before it settles your debts
- touts a "new government program" to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for just pennies on the dollar
Indeed, the IRS has no “pennies on the dollar” program, nor have they ever had one. There is one program whereby a taxpayer, if they financially qualify, can offer a lower amount that the IRS may agree to accept. It is called Offer in Compromise. Head over to IRS.gov and do a search. You’ll find that not only is it free, but it’s designed by taxpayers to prepare and submit themselves.
There are only a few reasons that the IRS can lift levies or liens. A levy, or garnishment on your income, can be lifted only after you have entered into some sort of repayment plan, or if you have demonstrated to the IRS that the levy is causing immediate financial hardship and you are unable to meet your basic living expenses.
A bank levy, because it only attaches as a one-time garnishment to the funds in the account at the time the bank receives the levy, is usually not released. The levy remits any funds and the account is then re-opened. Additional deposits are not subject to the levy and the IRS would have to issue another garnishment order to reach them.
Too, keep in mind that the IRS cannot assist you with any type of repayment option until you have sent in all the tax returns you legally are required to file.
Bottom line?
The IRS only takes collection actions after repeated notice upon notice has gone out. You are given written warning, provided with appeal rights, and allowed weeks and months to contact them. If you refuse, then yes, the IRS will legally collect unpaid Federal Tax debt.
However, you can avoid all such actions by contacting the IRS in a timely manner as soon as you realize you owe and cannot pay. Don’t wait for an IRS notice. They will work with you to reach a painless resolution, provide you with all your options, and save you an enormous amount of cash that otherwise would easily find its way into the hands of someone that will take it all, and do little for you in return.
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