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'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.

By Mitch Lipka Aug 2, 2013 2:47PM
Worried Man (© Corbis)If you're behind on your taxes and are trying to figure out how to deal with the Internal Revenue Service, a series of ads airing coast to coast seems to indicate that the perfect solution is waiting at the end of a toll-free hotline.

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."
If you need to meet with the IRS, you should consider retaining an 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.
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Aug 2, 2013 4:43PM
would not need tax releif if the tax system was flat and fair...
Aug 2, 2013 5:49PM
There was a time when trying to help a neighbor out was the thing to do.  You provided a service and got paid for a good outcome.   Now it's trying to help yourself to your neighbor's bank account if you think you can outwit them.
Aug 2, 2013 6:16PM
Television advertisements tell you that you "deserve"  to not pay your full tax liability, to not pay your creditors, to receive social security disability payments, to stick it to the insurance companies, and so on. What ever happened to personal and financial resposibility? 
Aug 2, 2013 4:54PM
Those dumb enough to believe the ads are probably already running other scams.
If these "options" were real, no one would pay in full and on time.

Aug 2, 2013 4:49PM
But do they do anything about this? No, why? because those tax relief companies pay taxes...sick!
Aug 2, 2013 5:54PM
Any "forgiven" tax debt is considered INCOME and is TAXABLE as such.
Aug 2, 2013 5:07PM
What? Another perfectly legal scam? Color me surprised...not.
Credit card use when interest rates were high made sense, since cash from savings cost lost interest. Using the credit card  provided money interest free for 30 days until you paid the balance in full each month. The float made good sense.
I closed a Chase card in 2008 and there apparently was a $50 charge that posted after the account closed. Two years later after 3 moves, I received a notice from Chase saying I owed them $160 for an unpaid balance and interest. I called Chase and complained about the notice, as I assumed they would have known about an amount unposted when the charge was made. The argued and threatened to turn me into the credit agency. They gave me an option of paying a settlement amount of $75 and avoid a black mark on my credit. I accepted the offer, begrudgedly and found that they reported me to the credit reporting agency anyway lowering my score from 800 to 625 for a $50 unposted charge. Apparently, the clerks are trained to lie to consumers to guarantee the payment due is paid regardless of the circumstances. After having a few credit cards for over 35 years and paying off the balances each month, this treatment was unacceptable. I immediately closed all my Chase accounts and took my business to B of A.
Aug 11, 2013 10:48AM
Why aren't the CEOs of these companies going to jail for Grand Theft ? 
The rules are different for the rich thieves as is evidenced in Washington D.C..
Aug 11, 2013 9:42AM
After dealing with the IRS locally in Lafayette, Louisiana, I felt as though I was dealing with a Gestapo agency. Most of the workers were rude and disrespectful. I reckon the problem was that the IRS owed us $109 and we were not going to allow them to keep it. Numerous phone calls and 4 visits to the local IRS soured our opinion of the IRS (Insidious Robbery Squad). Eventually we received our check. Next came the workers at the Louisiana Department of Revenue. Never tell them they have made a mistake or you will be audited. I did and we were audited. I had to file an amended return in which it ended up that they also owed us money. Then there is the Department of Motor Vehicles In Lafayette, Louisiana. What has happened to common courtesy? I foresee courses in Anger Management for most of these employees in the near future. 
Aug 4, 2013 4:00PM
Ahh... think the banks and all the other crooks in this society, must be messing with this web site.
And what's sad, is who to say your payment got in late, after all its up to them to post it.  And since we all know these Corps, hate hiring people, they probably don't have enough workers to get the job done.
Aug 11, 2013 5:50PM
It's funny when the state owes us for over paying we have to wait but if you owe them boy they get down and dirty and start talking about garnishing wages its time the government learned how to cut spending on non important thinks and start taking care of the working class!
Aug 2, 2013 5:44PM
Ahhh, capitalists.  Always willing to try and make a buck anyway they can.
Aug 11, 2013 9:45AM
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