The IRS sends out hundreds of thousands of notices every year. Some of these notices are easily resolved with a phone call to the IRS, but others require more attention or assistance from a qualified enrolled agent, CPA, or attorney. However, due to budget cuts it has been become increasingly difficult for people to contact the IRS and resolve issues which means that taxpayers are increasingly seeking help for IRS problems. Unfortunately, many taxpayers get taken advantage of by disreputable companies and unscrupulous salesmen who give them false hope or sell them overpriced and unnecessary services. This article will cover some of the common questions you should ask any tax professional or “tax consultant” who claims to be able to resolve an IRS problem for a fee.
Questions to ask all tax resolution companies:
You should ask all tax resolution companies the following questions, regardless of whether they call you or you call them. A reputable company or professional should be able to address all of these questions, Beware of companies who give evasive responses or “consultants” who become combative or verbally abusive.
(#1) Are you professionally licensed? – 9 out of 10 times the answer will be no as the vast majority of tax resolution companies use unlicensed and commissioned salesmen called “consultants” to “sign people up”. Where this becomes a problem is that many of these “consultants” have no real tax experience and are primarily selected based on sales experience. The most ideal scenario is to speak with the licensed professional who will be representing you directly, which is how our firm handles all new client interviews. The next best scenario is to speak with a paralegal, clerk, or associate who directly reports to the licensed professional and is knowledgeable in the subject area. However, you should always insist to speak with the licensed professional who will be representing you before you make any payment.
(#2) Who is representing me, what professional license and qualifications do they hold, and in what organizations are they active members? – The best way to handle this question is to ask the licensed professional directly if they place him on the line or compare his answers to the answers the “consultant” gave you.
Some factors that reflect positively on the professional are:
- Graduate degree in taxation (MST/MBT/MT/LLM)
- NTPI Fellow and/or CTRS designation (rigorous programs demonstrating proficiency in tax resolution)
- Active member of the National Association of Enrolled Agents, AICPA, or the local bar association (provides external credibility)
Some factors that reflect negatively on the professional are:
- History of discipline or misconduct
- Undergraduate, graduate, or law degrees from unaccredited or correspondence universities or law schools
- Lack of additional training in taxation
- Lack of involvement in professional associations
- Claim to be a “tax attorney” without being certified as a Legal Specialist in states where required (CA, TX)
Any nonspecific, vague, or evasive answer is a cause for concern. The best answer should sound similar to what we would say, which is:
“That’s a great question. I am licensed as an enrolled agent and CPA. I have a masters degree in taxation from Golden Gate University and an accounting degree from Pepperdine University. I am an active member of the National Association of Enrolled Agents, an NTPI Fellow, and am in the process of writing a book on tax resolution. Would you like me to have my staff send you some additional information?”
However, this is probably not the type of answer you will get from most firms.
Don’t be surprised if it is difficult to get a straight answer to this question as it tends to be one of the questions where you should expect “consultants” to be most evasive and answers will probably fall into one of two main categories depending on the size of the company.
“Consultants” for larger companies will likely deflect this question by telling you that there are multiple professionals and one will be assigned when a contract is signed. However, a reputable tax resolution company should be able to provide you with general information about the professionals who are most likely to be assigned.
The other type of answer is usually provided by “consultants” for smaller companies, who will provide you with background on a licensed professional. However, you should always insist to speak with this individual because many times the professional listed no longer works for the company or doesn’t actually manage client matters.
The unpleasant truth about the vast majority of tax resolution companies, especially smaller companies, is that they have only one or two licensed professionals and primarily use unlicensed individuals as “case workers”, “case specialists”, or “case managers”. Licensed professionals in these companies usually have limited or minimal involvement with clients with unlicensed individuals being responsible for managing client files. This can mean that while you are promised that a licensed professional will represent you, they will never actually see your file.
One way to verify what the company has told you is to look at the power of attorney form that is sent to you with the initial documents. This form (IRS Form 2848) should have the name and contact information of one to four licensed professionals on the middle of the first page and their license number and type on the bottom of the second page. If you only receive the second page of the form, look at the bottom of the second page for the license type and number. If the professional is an attorney or CPA, you should be able to look them up online. If no license information is listed, or if the company refuses to send you the first page of the firm, you should seriously consider finding a new professional.
(#4) What is the name and phone number of the professional’s manager and what license do they hold? – This question serves two purposes. It tells you whether the company has effective supervision of licensed professionals and also allows you to promptly escalate any concerns you have about your case. Be wary of any company that refuses to provide you this information or refuses to let you speak to the licensed professional who is representing you.
(#5) Where is your office and can I meet with you or the professional in person to discuss this matter further? – Most tax resolution companies are based in California, Colorado, or Florida, which will make it difficult for most people to actually visit their office. However, a reputable company should always be willing to tell you where they are located and arrange a physical meeting if you’re in the area. This means that you should always ask this question to see how the “consultant” handles it even if you can’t actually meet them. If you are able to visit their office, always insist on a physical meeting to finalize details and make it clear that you expect to meet with the professional at least briefly. This gives you an opportunity to critically evaluate both the company and the professional and make a more informed decision about whether to hire them. If they aren’t willing to meet with you in person, you shouldn’t be willing to pay them any money.
(#6) How do you propose to help me resolve my tax problem and how long will it take? – Companies tend to take two approaches to this question. Some deflect it to the professional, or tell you they need to do an “investigation”. Others will tell you what they expect to do for you. Be cautious of any company or consultant who tells you there are “new IRS programs”, they can settle your tax debt for “pennies on the dollar”, who promises penalty or interest abatement, or who claims to have a special relationship or contacts at the IRS. Each of these statements is false or misleading because:
- There are no new IRS programs: The IRS has made changes to some programs, but these changes only help those who owe less than 50,000 and are able to pay it within 72 months. The vast majority of people who owe the IRS money will either set up a payment plan, propose a permanent settlement, or have collection temporarily suspended due to economic hardship.
- It’s harder to settle tax debts than most people think: The IRS only settles tax debts when the amount offered exceeds what the IRS would reasonably expect to collect. The IRS looks at equity in assets and income less standard expense amounts to determine what they could reasonably expect to collect. This means that in order to settle your tax debt, you either need to owe a lot of money (more than 100,000), or have very little income and equity in assets. There are some exceptions to this rule, but these are rather unusual, and most people end up with a payment plan or collection suspended.
- Interest is statutory. Penalty abatement is based on reasonable cause: The IRS is unable to abate interest on taxes. Penalties can only be abated when there is reasonable cause, which can be very hard to demonstrate when the penalty is for failure to pay. Some penalties may be abated based on a good compliance history, but most will not.
- The IRS frowns on favoritism or special relationships: Independence and integrity are things the IRS takes very seriously. IRS employees who do favors for taxpayers or representatives do not last long. This aside, there are so many IRS employees that it is almost impossible for a resolution company to have a special relationship with the IRS employee or office handling your case.
Some important things to keep in mind about resolution are:
- Your financial information dictates resolution options: If you owe the IRS more than $50,000 and/or can’t pay it off in 72 months or less, then your financial information will dictate what options are available to you. A permanent settlement is usually only available when you have filed all returns, are able to pay your current taxes as they come due, and where the IRS does not have the ability to collect more than what you are offering. This means that in most cases, you won’t qualify for a permanent settlement unless you have very little income and equity in assets or where you owe a lot of money (more than 100,000). It is more likely that the IRS will expect you to enter into some payment plan or if you are in an economic hardship, will temporarily suspend collection until the hardship ends. A proper consultation should include an in depth review of your financial information and any proposed resolution should be based on this review.
- You don’t always need a paid professional to resolve your case: One of the dirty secrets of tax resolution is that many taxpayers do not need professional assistance. If you owe the IRS less than $50,000 and can pay it off within 72 months, you can probably just call the IRS and set up a payment plan over the phone very easily. Similarly, if you are in an economic hardship, you could either call the IRS directly, or call the Taxpayer Advocate Service, or go to a local Low Income Taxpayer Clinic (LITC) if you qualify, and the IRS should temporarily suspend collection until your condition improves. Unfortunately, most tax resolution companies won’t tell you this and will try to get your money, which we feel is incredibly shortsighted because this will just lead to fee disputes and client dissatisfaction down the road. Our office policy, like most local professionals, is that if a taxpayer would be better served dealing with the IRS themselves or an LITC, we will refer them there because it does no one any good for us to take on work we can’t complete or that doesn’t require our help.
- Local professionals are better suited to deal with local offices: A tax resolution company usually handles national cases and may not be as familiar with your local office as a local professional, if a local office is handling an issue. A local professional is also able to visit the local office in person, which may assist in moving your issue forward. Some tax resolution companies have local professionals, but most won’t and will try to resolve your issue without taking into account regional differences or sensibilities. This is why our office tends to refer complex cases assigned to a local office in a different region to a local professional in that region.
- Each case is unique and will have a different timetable: No two IRS issues are exactly alike. Complexity, unfiled returns, or inability to remain current with tax obligations can all contribute to delaying out resolution. However, when your returns are filed and you are paying your current taxes as they come due, our experience is that it should only take around 1 to 3 months to establish a payment plan or have collection temporarily suspended. However, it can take longer if you owe over $250,000, because the IRS is required to assign the account to a local office for resolution. An permanent settlement in our experience will take at least 6 months and may take as long as 24 months to finalize due to lack of personnel in the IRS to process offers. While no one can provide an exact time frame, a reputable tax resolution company or licensed professional should be able to provide you with a ball park number.
(#7) What does your fee cover? – This tends to be one of the more nebulous questions. Almost all tax resolution companies charge flat fees, but what the fee covers varies based on the company. Most companies are not particularly transparent about what their fee covers and many companies are incredibly deceptive about what their services cost. It used to be common for companies to quote one all inclusive fee and then nickel and dime clients for additional fees. The most recent trend to hook people is to charge a small sum to do an “investigation”, and then come back with a larger fee to actually solve the problem.. The key thing is to read the contract closely and beware of any contract that doesn’t clearly spell out what the fee is or what the fee covers. If you are dealing with a company or office that bills by the hour, they should be able to provide you an estimate of how many hours your issue will take to resolve, which will translate into about how much you should expect to pay them.
(#8) How much is your commission? – Almost all tax resolution companies use commissioned salesmen to sign taxpayers up for their services. Regardless of what the company calls these salesmen, 9 out of 10 times at least part of their pay is dependent on either number of sales or amount of services sold. Be incredibly wary of any salesman who tries to tell you otherwise.
Questions to ask lien callers:
Some tax resolution companies get business by pulling tax lien filings from local courthouses and calling those individuals or mailing them intimidating looking letters. These companies usually rely on fear and intimidation to secure business, because they assume you are afraid of the IRS and eager to make the problem go away, no matter what it costs. These companies also tend to be much more aggressive and have no problem trying to draw a wedge between you and your current professional to get a quick sale. Consider asking these companies the following four additional questions, assuming that they haven’t hung up after you finished with the questions above.
(#9) How long will it take for you to remove the tax lien? – Tax liens are almost automatic when you owe the IRS over $10,000 and are incredibly difficult to remove once in place. This doesn’t stop disreputable companies or “consultants” from promising that they can remove them, which usually isn’t possible until the tax is paid, drops below a certain level, discharged in bankruptcy, or becomes permanently uncollectible (this is not the same as being temporarily uncollectible due to economic hardship).
(#10) Can you do anything about the penalties and interest and can I settle this for pennies on the dollar? – Interest is statutory and penalties can only be abated with reasonable cause, which is a high bar to meet. The IRS will abate some penalties based on compliance history, but not all penalties qualify and this would only apply to one year when the three prior years have no penalties assessed. Be wary of anyone who says multiple years of penalties can be abated without talking about your facts and circumstances in depth.
(#11) How do you know my current professional isn’t doing anything for me? (if you have one) – One common tactic “consultants” use when you already have a professional or another company is to try to convince you that your current professional isn’t doing anything for you or that they can do something for you. However, they can’t truly say this without knowing your facts and circumstances, which it’s highly unlikely they know when you pick up the phone.
Don’t be afraid to ask additional questions:
These questions will provide you with important information about the tax resolution company that wants your business, but don’t be afraid to ask any additional questions you have.
If you find you are dissatisfied with the responses you’ve received from tax resolution companies, or you’d rather deal with a local professional, please click here and we will do our best to connect you with a qualified local tax professional that can help you resolve your problem.