How To Avoid Tax Relief Scams

Tax debt is a serious problem that affects nearly 8 million Americans. In fact, the average consumer owes nearly $10,000 to the IRS -- a substantial sum that can make it difficult for consumers to pay off.

Although a reputable tax resolution company can offer consumers tax debt relief, many tax relief companies have been shut down recently due to preying on struggling consumers.

You may have heard advertisements in which tax relief companies promise to settle your tax debt for exceptionally small amounts or you might have been contacted through phone or email by scammers pretending to be the IRS and asking for personal and financial information.

For example, the state of California shut down a company operated by Roni Deutch in 2011 due to illegal and predatory practices targeting consumers who could not pay their taxes. Additional, TaxMasters and JK Harris & Company were sued for deceptive business practices and ultimately filed for bankruptcy. All three companies showed signs of fraud before they were shut down and consumers nationwide lost millions to these scams.

Below, we break down the red flags to watch out for and the signs that you have found a reputable tax relief firm.

What To Watch Out For

Upfront Fees Without Any Services Performed

One of the biggest red flags of non-reputable tax relief companies is to charge upfront fees without performing any services and promising results that they can't guarantee you will receive, especially if this is done before even contacting the IRS for your information.

Service Without Refunds Or A Money Back Guarantee

Reputable tax relief companies should offer you a refund or money back guarantee in the case their services don't work for you. It puts some accountability on their side and gives you peace of mind. Any tax debt relief service that refuses a refund shouldn't be trusted.

The "Pennies On The Dollar" Promise

Some scams come in the form of promising "pennies on the dollar" settlements such as an Offer in Compromise, which is an agreement between the IRS and the taxpayer that settles the taxpayer's tax liabilities for less than the full amount owed. Only a quarter of taxpayers actually qualify for an OIC since it is only reserved for those who can't fully pay their taxes through an installment agreement or other methods.

These companies simply want to sell their services to you and may lead you to believe that you will be able to settle your debts easily, then later state that they can't help you because they did not receive IRS approval.

Your tax relief company needs to look at your individual situation thoroughly before making any recommendations. Not every individual can qualify for an IRS tax relief program and no company can make that promise to you.

Tax relief companies should perform a thorough assessment of your finances before beginning the tax settlement process.

Promising To Accept Any Case

Legitimate tax debt relief companies can't promise to accept every single case they come across. Instead, they should go over your individual situation before making any recommendations and if they can't assist you, a tax relief firm might refer you to another company or one of their partners for further assistance.

Companies Posing As Tax Relief Providers

Some scammers may pose as tax relief companies and act as though they are working hard on your case; in reality, they only sell your information to other tax firms or independent contractors and take a cut of the payment.

Shady Business Practices

Many tax relief companies have been shut down by state Attorney Generals due to unethical businesses practices such as collecting money before providing any services or even gathering the necessary paperwork from the IRS. They may inform you that they can't deliver on their promised services and refuse a refund because it is not part of their policy. After being shut down, these companies often change their name and continue the same fraudulent practices.

Asking For Financial Information Over The Phone

If a tax relief company seems to be pushing you to sign up and are badgering you for information -- especially over the phone -- then steer clear. You are not obligated to provide your personal information (like your credit card number) over the phone.

What Are Some Signs Of A Reputable Tax Relief Company?

They Have Accreditations And A Good Reputation

You can research a company by looking up their memberships and accreditations like the NAEA (National Association of Enrolled Agents), the NATP (National Association of Tax Professionals), and rating from the BBB. You can also check resources such as Rip Off Report and Trustpilot to gauge a company's reputation based on what consumers are saying.

Their Staff Should Include Tax Professionals

Tax relief companies should have licensed and enrolled agents, CPAs, and attorneys.

They Offer A Free Consultation And Financial Analysis

A reputable tax relief company should offer a free initial consultation and dive into your full financial situation before making any recommendations or starting the tax relief process.

They Don't Require Upfront Payments

You shouldn't have to pay any upfront fees for tax relief services. Tax relief firms usually only receive payment after services are performed, although some companies will charge a small fee in order to do the necessary research regarding your situation and hire a tax professional to do the work.

They Service Their Own Clients

Some unethical tax relief firms advertise tax debt relief services but only refer you to a larger company. It's best to hire a company that offers in-house services through their own team of professionals.

They Offer A Wide Variety Of Services

Reputable tax debt relief companies offer a variety of services for their clients that can include relief from:

• Asset seizers
• Audit protection
• Audit representation
• Back taxes
• Bookkeeping services
• Corporate tax preparation
• Free tax consultations
• Garnishment and levy release
• Individual state tax relief services
• Installment agreements
• Penalty abatements
• Tax audits
• Tax liens
• Tax preparation

They Include You During The Process

Tax companies should always include you in the tax relief process instead of making a decision without consulting you. A reputable firm should inform you of your consumer rights and educate you about the best financial decisions.

They Offer A Refund Or Money Back Guarantee

If you hire a firm that does charge upfront fees for initial services, then make sure they offer a refund or money back guarantee in case their services don't work for you.

Our Top Recommendations

We recommend working with tax relief services such as Anthem Tax Services, an accredited service that offers nationwide services, a money back guarantee, and a variety of in-house services through their team of professionals that include licensed and enrolled agents, CPAs, and tax attorneys.

Learn more about the best tax relief options here.

Do tax relief services actually work?

A reputable tax relief service can help taxpayers lower their debt and deal with tax issues from the IRS, such as back taxes, wage garnishments, audit guidance, and working out payment agreements.

What are some signs of a tax relief scam?

Some common red flags include:

• Upfront fees without any services performed
• No refunds or a money-back guarantee
• Promising to settle your debt on pennies on the dollar
• Promising to accept any case
• Shady business practices
• Asking for your financial information over the phone

What are some factors to look for in a tax relief company?

• Accreditations
• A positive reputation
• A staff with tax professionals
• A free consultation
• In-house services
• A wide variety of services that can assist with audit representation, back taxes, garnishment and levy release, installment agreements, tax liens, and more

About The Author

Minji Kim, LLM

Tax Attorney LLM at Anthem Tax Services

Minji Kim is currently a tax attorney at top rated tax resolution company Anthem Tax Services. With 10 years of experience practicing in tax law, Minji Kim has a Juris Doctor (JD) degree with a concentration in Taxation. After finishing her 1st year law school Taxation class, she become more interested in taxation, and she ended up signing up for a Joint Degree Program during Law School.

One year after getting her Juris Doctor Degree, Minji Kim received her Master of Laws (LL.M) degree in Tax Law. Minji was involved in numerous volunteer activities while in Law School. She particularly enjoyed being a VITA (Volunteer Income Tax Assistance) member, because she found it very interesting to see how an individual's tax numbers can change depending on different circumstances.

Minji enjoys assisting people in tax law strategy and improving their tax situation, and strives to help people understand better how taxes are involved in everyday life.

Articles by Minji Kim, LLM

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