Dealing with delinquent taxes can be stressful, confusing, and scary. Because of this, you might be desperate for help to stop IRS tax collection efforts such as a tax lien or levy. Some companies prey on this desperation by claiming they can make your tax debt go away or settle it for pennies on the dollar. Some of these claims are outright lies, while others are merely a bit misleading.

Fortunately, companies that rely on deceptive advertising are not the only option. There are legitimate tax resolution companies that can help you with your tax problems. But how do you avoid scams and find a company that can truly help you?

The following is an overview of what you can expect when wading into the tax relief industry. With this information, you can make an informed decision on whom to hire and avoid getting ripped off.

Key Takeaways

  • The tax resolution process – The tax resolution process usually consists of an initial consultation, an investigation and financial analysis, and the implementation of the tax resolution plan.
  • Fees – Most tax relief companies bill using a flat fee, percentage fee, or hourly fee arrangement. Clients can expect to pay their bills in three main ways: full upfront fee, partial upfront fee, or ongoing billing arrangement.
  • Cost – The total cost for tax resolution services will depend on many factors, but typically costs a few thousand dollars, with increasing costs, the bigger the tax debt and the more complex the tax issues.
  • Red flags of poor service – Red flags that indicate you should find a different tax relief company include too-good-to-be-true promises, aggressive sales tactics, and recommending a specific tax approach despite not conducting a full analysis and investigation of your financial situation.
  • How to find trustworthy help – When choosing a tax relief company, look for those with good reviews, provide full transparency, and explain important terms of representation (like work to be done, fee structure, and timeline) in a written contract.
  • Why work with an attorney – Depending on your tax needs, there are benefits to hiring a tax attorney, such as greater confidentiality protections, higher ethical and professional standards, and the ability to handle your case if it goes to litigation.

How the Tax Resolution Process Usually Works

Most tax resolution companies exist to help taxpayers deal with a tax debt they can’t currently afford to pay in full. Their goal is to help you settle your debt with the IRS or other taxing authorities. Ideally, you’ll settle your debt for less than what you owe. Despite what much of the tax relief advertising claims, settlements aren’t very common. Also, any reductions in taxes owed aren’t usually as large as you might hope.

There are three main parts to most tax resolution processes. Part one is the initial consultation. Depending on the tax relief company, this will be free, or there will be a relatively small charge. If there’s a charge for the initial consultation, it’s not necessarily because the company is greedy or trying to nickel and dime you. Instead, it could be a way for the business to only schedule consultations with serious potential clients.

The initial consultation exists to benefit both you and the tax relief company. It helps you by offering a chance to get a better understanding of your tax problem. It also gives you a chance to get a “feel” of the company and see if it will be a good fit for you.

The initial consultation benefits the tax relief company in that they can get an idea of your tax problem and decide if they can help. They might not have a tax professional with the skills or experience to help with your particular tax problem. Or if they do, they might charge more than you can afford. In some cases, you might be able to handle your tax issue on your own, and the initial consultation will give you a chance to get the information you need to get started.

If, after the initial consultation, both you and the tax relief company want to move forward, you’ll start the information-gathering and financial analysis phase. This is sometimes offered for free, but there’s usually a charge (more on this in the following sections).

The tax relief company will often start by reviewing your relevant tax documents, such as Form 1040s from the past few years and your IRS tax transcript. The transcripts are critical, as they’ll outline your tax compliance history and list your outstanding tax balance owed, including applicable interest and penalties. Key dates will also be listed on your tax transcript, such as when a tax was assessed. This could be important if the statute of limitations could apply to your tax debt.

After looking over your tax transcripts and gathering other relevant financial information, the analysis occurs. This is where the tax relief company decides what your available options are and the pros and cons of each option.

Part three involves the implementation of the tax resolution plan. This could include setting up a payment plan, appealing the delinquent tax, applying for an offer in compromise, or requesting Currently Not Collectible (CNC) Status. This is where most tax relief firms will collect the bulk of their fees.

How Tax Relief Firms Usually Bill For Their Services

When it comes to fee structures, there are two main variables to keep in mind. First, there is how the tax relief company charges its fee:

  • Flat fee: The tax relief firm charges a base price for the specific work they expect to do for the client.
  • Percentage fee: The fee paid to the tax relief company is proportional to a given amount of money, such as the amount of tax owed.
  • Hourly fee: Clients pay based on the time spent to resolve the tax matter. Rates are typically a few hundred dollars per hour.

The second variable is when you have to pay your tax relief company:

  • Full fee upfront: The total amount for the tax relief services must be paid upfront.
  • Partial fee upfront: Only part of the total amount for the tax relief services is paid upfront, with the remaining balance paid over time, such as with monthly payments.
  • Ongoing billing: The tax resolution company will charge a monthly fee or retainer for as long as they’re handling the tax matter.

It’s also possible that a combination of fee structures will be used. For example, a company might charge an hourly fee but ask for an upfront retainer to be paid to cover the cost of the first 10 hours of anticipated work.

How Much Does it Cost to Hire a Tax Relief Firm?

The short answer is that you should expect to pay at least a few thousand dollars for the services of a tax relief company to help you settle a tax bill with the IRS. It’s hard to provide a more specific number as every tax company will have a different way of pricing their services and tax matters can vary widely in their complexity and the amount of time and effort required.

That being said, here are some ballpark numbers for what you can expect for certain parts of the tax resolution process and the handling of certain tax matters.

Initial Consultation

This is often free but may cost up to a few hundred dollars. If it’s free, the tax resolution firm will make up for this cost somehow. They might charge a higher tax resolution or investigation fee. Or they might limit the consultation to 20 minutes and only provide the most basic assessment and advice.

Investigation and Financial Analysis

This can cost anywhere from $500 to $1,500, and someone from the tax relief business will examine your tax transcripts, prior tax returns, and other financial information. From there, they’ll recommend one or more courses of action. To help alleviate this cost, many tax relief companies will credit the investigation and analysis costs toward the total resolution fee.

Resolution of Tax Matter

This depends on what course of action the tax relief firm recommends, but will typically be a few thousand dollars. Below is a list providing more specific estimates for certain tax debt relief services:

  • Offer in Compromise (OIC): $3,000 to $7,500.
  • Penalty Abatement: up to $1,000, but because the fee may exceed the penalty abated, some firms are willing to charge a percentage of the amount the penalty was reduced, plus a flat fee of a few hundred dollars.
  • Tax ID Theft: A few thousand dollars.
  • Partial Payment Installment Agreement (PPIA): $3,500 to $5,000.
  • Installment Agreement: $2,500 to $3,500, but could be more if the taxpayer is a business.
  • Currently Not Collectible (CNC) Status: $2,500 to $4,000.
  • Innocent Spouse Relief: $3,500 to $5,000.
  • Levy Release/Stopping Wage Garnishment: Up to about $2,000.
  • Tax Return Preparation: A few hundred dollars for a simple, individual return all the way to a few thousand dollars for a more complex return (such as one for a business).

Tax Resolution Red Flags to Avoid

Cost is obviously an important factor to consider, and given how you can expect to pay a few thousand dollars, some less-than-reputable tax relief firms might try to bend the truth or cut corners when soliciting your business or handling your case. Here are some red flags to look out for when choosing a tax relief company:

  • Ongoing billing fee structure: Often, a “pay until case is closed” arrangement this may signal that you’ll be charged an excessive fee as the tax relief firm has an incentive to drag your matter on as long as possible. If a tax relief firm you’re interested in has this fee structure, make sure they provide a detailed outline of the work they expect to do and the projected timeline for completion.
  • Too Good to Be True Promises: Only in exceptional and rare cases will the IRS or a state tax department agree to settle a tax debt for pennies on the dollar. In situations where this is a possibility, the tax relief firm will need to carefully analyze your tax situation before making this type of prediction.
  • Low-Cost or Free Investigation and Analysis: This is one of the most difficult and involved parts of the tax relief process, so it stands out when this is offered for free or at an unusually low cost. This doesn’t automatically mean the tax relief company is a scam, but they’ll get back their lost revenue somehow, and you need to be sure you understand how.
  • No Investigation or Analysis: If a tax relief company says it can help resolve your tax issue and recommends a course of action without reviewing your financial and tax information, this is a strong sign that you should consider a different tax relief service.
  • High-Pressure Sales: The better tax relief businesses will let their services and business practices speak for themselves. They won’t try to coerce or pressure you into hiring them by giving you a short amount of time to make a decision or sign a contract.
  • Financing for Fees: Most tax relief firms understand that many of their clients can’t pay the full fee upfront, but to set up a payment plan with a high interest rate is asking for trouble.
  • Not Knowing Who Will Work on Your Case: If you hire a tax relief company owned and/or operated by an attorney, accountant, or enrolled agent, you might expect this professional to handle all aspects of your case. This sometimes occurs, but what often happens is that someone else will handle a lot of the administrative work on the case, with the tax professional handling the more complex and nuanced parts of it. This isn’t a problem, but a company that isn’t honest about how it delegates work is something to be wary of.

Choosing the Right Tax Resolution Firm

Assuming you’ve weeded out any possibilities due to red flags, there are things to look for and consider before making a decision.

You want a firm that’s transparent with how they do things. A good firm will walk you through every step of the tax resolution process, including how long it can take, who will handle your case, what results you can expect, how much it’ll cost, and how fast you can expect someone at their office to return your call or email.

Get a second opinion. Even if they’re not free, it’s a good idea to get at least two initial consultations and see if they both provide the same general recommendation. If they do, you’ll be more comfortable going with either, knowing they probably know what they’re talking about. You also want a second opinion to compare prices. It’s okay to shop around and see if you can get a better deal from a different tax relief firm (assuming there are no red flags, of course).

When you decide on a firm to hire, you should expect them to ask you to sign a written contract. It might seem counterintuitive to sign something that legally binds you, but this contract will also legally bind them. Make sure the contract outlines the scope of work, fee structure, and projected timeline as well as listing any refund or payment policies.

Finally, look up reviews of the tax relief firm and the credentials of the tax professionals who work there. If they have attorneys, certified public accountants (CPAs), or enrolled agents (EAs), you should be able to verify that they hold those credentials in good standing. For example, you can verify the status of an EA on the IRS website.

Is it Worth Hiring a Tax Relief Law Firm?

When doing your tax relief firm research, you’ll likely come across a few that have tax attorneys on staff. These businesses will often have comparable fees to other tax relief firms without licensed attorneys on staff or be slightly more expensive. Either way, is it better to hire a firm with an attorney instead of an EA or CPA?

There’s no definitive answer to that question. However, several advantages come with having an attorney handle your tax matter.

More Regulated

Tax professionals that are registered or licensed to practice before the IRS are bound by regulations (commonly known as Circular 230) that establish ethical and professional duties. However, attorneys have additional obligations as outlined by their respective state bar rules and codes of professional conduct. If an attorney violates these rules, they are subject to discipline, which can include public reprimands, license suspensions, and even disbarment.

Greater Confidentiality

CPAs and EA also have a professional and ethical duty to keep their client information private. However, these protections aren’t as expansive or as rigorously protected by the courts as the attorney-client privilege.

As its name implies, these protections only apply between an attorney and a client. In most tax matters, these additional protections shouldn’t be necessary. But if a tax matter were to result in courtroom litigation, these confidentiality protections are more robust and expansive than any communication privileges that exist between a client and an EA or CPA.

Increased Ethical and Professional Obligations

Because an attorney is bound by their state’s professional and ethical regulations and rules, they’re less likely to act in a manner that goes against their client’s best interests. Compare this to many tax relief companies that only have to follow basic state and federal consumer protection laws and IRS guidelines.

The greater ethical and professional duties of lawyers also include greater disclosures to current and prospective clients. A client who hires an attorney to handle their tax matter can expect a clearer and easier-to-understand explanation of fees and scope of representation.

Legal Representation

Most taxpayers who seek the services of a tax resolution company don’t end up in court. Yet, if it were to happen, having an attorney who is already familiar with the case can be helpful. Additionally, an attorney handling a tax matter has greater skills and experience to avoid getting into legal trouble in the first place.

When Not to Hire a Tax Relief Company

Not all tax problems require the help of a tax professional. In some cases, a tax professional is only needed to help the taxpayer identify key issues or concerns and then briefly explain what happens next. This will generally be the case if your tax issue involves a relatively small unpaid tax balance (a few thousand dollars or less) and a tax issue that isn’t complex.

For instance, perhaps you received a notice from the IRS about a tax you owe because you underpaid your taxes when making your estimated quarterly tax payments. After reading the notice, you agree with everything the IRS is claiming and acknowledge you owe the tax and any penalties and interest. In this case, you probably don’t need to hire a tax professional to help with this issue. Even if you can’t afford to pay the full amount immediately, you can probably contact the IRS yourself to set up a basic payment plan or installment agreement.

When in doubt, contact a tax relief firm to schedule an initial consultation. Spending a little bit of time to confirm your assessment and clarify what you need to do next will usually be worth the time and money for this peace of mind.

Find Tax Relief From a Reputable Tax Resolution Law Firm

Trying to get the right tax relief help can almost seem as challenging as dealing with the tax delinquency itself. There are so many tax relief companies out there with even more promises and guarantees that seem too good to be true. Many of these businesses are legit, but scams exist. Even if they’re not run by scam artists, some of these tax resolution businesses don’t have the most ethical business practices or fair pay structures.

With a little bit of research, you can find the right tax resolution company for you. And depending on your specific tax relief needs, it could be Seattle Legal Services, PLLC. To learn more about how our firm can help, fill out our online contact form or call 425-428-5262.