'Tax relief' that will put you deeper in debt
If you owe the IRS money, ads claiming that you can get the debt forgiven can be tempting. But be careful: Many make it seem as if you're dealing with the government when you're not.
The ads typically note the IRS has a tax forgiveness program and that you just have to call a hotline to get going on your road to erasing your tax problem. But behind the scenes is a big concern that consumers should be wary of.
An entire for-profit industry has grown up around being the intermediary between the consumer and the government.
The problem is these government programs are free to use and don't require an intermediary. Plenty of businesses that try to take money from you to do what's free have gotten in trouble along the way.
Consider American Tax Relief, which earlier this year agreed to surrender $15 million in cash and property after being accused by the Federal Trade Commission of bilking consumers out of $100 million in a scheme involving promising to reduce tax debts owed to the government. Among the items surrendered were a house in Beverly Hills, Calif., and a Ferrari -- which goes to show just how much profit there can be in taking money from people who think they're getting help with their IRS woes. The company owners also had leased a Rolls Royce, a Bentley, two Porsches and two Mercedes.
Consumers were pitched, through radio and Internet ads, the idea that an IRS program was allowing a one-time opportunity to settle all outstanding tax bills. So, after a consultation, those who decided to move forward paid from $3,200 to $25,000 in upfront fees after being told they qualified for government deals to close out their tax bills. Most did not qualify.
Where to find real help
The IRS does have programs, such as Fresh Start, which provide additional options for those with tax debts to pay them off. Those who are struggling financially and owe taxes are afforded the opportunity to reach a compromise based on their income and expenses. Payment plans can also be arranged. Rarely will someone qualify to have their debt abated.
While the ads for tax relief services rarely, if ever, mention the upfront fees, that's how they profit from your tough situation. The FTC warns that these types of businesses cause trouble rather than provide help.
"If you pay them an upfront fee, which can be thousands of dollars, these companies claim they can reduce or even eliminate your tax debts and stop back-tax collection by applying for legitimate IRS hardship programs," the FTC said. "The truth is that most taxpayers don't qualify for the programs these fraudsters hawk, their companies don't settle the tax debt, and in many cases don't even send the necessary paperwork to the IRS requesting participation in the programs that were mentioned. Adding insult to injury, some of these companies don't provide refunds, and leave people even further in debt."
enrolled agent --someone who is certified to represent taxpayers before the agency -- or hiring an attorney or CPA.
Here are some more tips from the FTC:
Read your notices from the IRS or your state comptroller. Ask those agencies about collection alternatives.
Save yourself some aggravation by ignoring promises from businesses that say you "qualify" for a tax relief program to resolve your tax debt. Only the IRS or your state comptroller can make that determination. Read the IRS Offer in Compromise Booklet, Form 656-B (.pdf file), and use this IRS online tool to see if you may be eligible for an offer in compromise.
Think twice if the entire fee for services is requested upfront with no explanation of how services will be billed or whether a refund of unearned fees will be made.More from MSN Money:
If these "options" were real, no one would pay in full and on time.
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