Unknown Information Regarding IRS Tax Relief Programs

It’s that time of year again when the airwaves are filled with commercials for tax relief services, promising to settle your back taxes for just pennies on the dollar. Those catchy jingles might still be playing in the back of your mind. But are these services legitimate, or are they just blowing hot air? Critics argue that they prey on people who are already struggling financially or those who don’t fully understand their tax returns. Before you seek help from a tax relief agency, here’s what you need to know.

Let’s start with a simple truth: any service a tax relief company offers is something you can do yourself at no cost. You don’t need a third party to negotiate with the IRS. Owing taxes to the government is no different than owing money to any other creditor. If you’re having trouble making your tax payments, your best course of action is to contact the IRS directly. They are often willing to negotiate a payment plan for your back taxes.

The IRS has an independent organization called the Taxpayer Advocate Service, which offers free assistance to taxpayers in need. You can reach a taxpayer advocate at 1-877-777-4778 or fill out Form 911, Request for Taxpayer Advocate Service Assistance, and fax or mail it to the appropriate address for your state.

Another option for taxpayers in debt to the IRS is the Fresh Start Program, designed to make paying back taxes and avoiding tax liens easier. The program offers three main features:

  • Tax Liens: The threshold for the IRS to file a Notice of Federal Tax Lien is now $10,000.
  • Installment Agreements: Individual taxpayers who owe up to $50,000 can pay it back through monthly debit payments over 72 months.
  • Offers in Compromise: This allows taxpayers to settle their tax debt for less than the full amount.

The IRS generally accepts an offer in compromise if they believe they can collect the payment within a reasonable amount of time. However, some people may not qualify if it’s determined they can pay the entire amount in a lump sum or through a payment agreement. To learn more about how to qualify for the Fresh Start Program, start an online search and visit the IRS website.

If you feel that you need outside help, there are other options to consider. Consulting with or hiring a tax attorney, a Certified Public Accountant (CPA), or an Enrolled Agent (a tax professional federally authorized to represent taxpayers before the IRS) can be very beneficial. These professionals have the authority to represent you to the IRS.

Personally, I prefer working with a CPA. They can review your past tax returns and potentially identify errors. CPAs have the authority to correct these errors by filing amendments, which might lower your tax liability in addition to negotiating tax relief. In some cases, you might even find that penalties can be completely eliminated if the taxes owed were due to a filing error. While this might sound unlikely, it happens more often than you’d think.

The Installment Agreement program allows those who cannot pay their tax debt in a single payment to make smaller monthly payments instead, until it’s paid off. This is essentially like getting a loan from the IRS. There’s a set interest rate and everything. Whatever amount isn’t paid is going to accrue interest until the whole thing is paid off. For longer loans (over six months), there’s typically a small setup fee too. It can be as much as $225 if you apply by phone, mail, or in-person. Luckily, the setup fee is reduced for low-income individuals to $43. Additionally, you can also apply online for $149 — no matter what your income is.

The Installment Agreement program offers individuals who can’t settle their tax debt in one lump sum the option to make smaller monthly payments until it’s fully paid off. It’s akin to securing a loan from the IRS, complete with a fixed interest rate. Any unpaid balance accumulates interest until fully settled. For longer-term agreements exceeding six months, there’s typically a nominal setup fee, which can reach up to $225 when applying by phone, mail, or in-person. However, this fee is reduced to $43 for low-income earners. Alternatively, applying online incurs a flat fee of $149, regardless of income level.

The Offer In Compromise (OIC) program provides taxpayers with an opportunity to settle their tax debt for less than the full amount owed, contingent on specific circumstances. These circumstances typically fall into one of the following categories:

  • When the IRS deems it unlikely to collect the full amount owed.
  • If a compelling argument is presented as to why the taxpayer should not be held liable for the assessed tax penalty under current tax laws.
  • When the taxpayer can afford to pay the bill in full, but doing so would result in economic hardship or be deemed unfair and inequitable due to exceptional circumstances. Approval in such cases is evaluated on an individual basis and is granted sparingly.

This program is typically considered only after the taxpayer has exhausted all other available payment options, and the IRS has thoroughly assessed the taxpayer’s financial situation.

The IRS may consider offering a penalty abatement in situations where taxes were not paid due to reasonable cause, such as being impacted by a natural disaster or experiencing a serious illness. Similarly, an interest abatement program exists, although it is utilized less frequently. In both cases, the taxpayer must provide evidence supporting the reasons for the delay in paying the original tax amount. However, it’s important to note that the taxpayer would still be required to pay the full amount of the original taxes owed, excluding the interest or penalties.

Determining eligibility for these programs rests solely with the IRS. Any tax relief service claiming guaranteed qualification should be approached with caution. Ultimately, these services can only assist in applying for IRS programs on behalf of the taxpayer, a process that can also be undertaken independently with proper research and effort.

Some tax relief services may end up costing you more money without delivering the promised relief. While it’s not necessarily illegal for them to charge upfront fees, there’s a risk of the IRS rejecting your relief application, leaving you with additional expenses. Although these services technically fulfill their obligation by representing you to the IRS, facing another bill when struggling to pay taxes can exacerbate financial difficulties.

Not all tax relief services are fraudulent, but some have faced scrutiny from regulatory bodies like the Federal Trade Commission and the Better Business Bureau. Complaints against these companies range from failure to file paperwork with the IRS to refusing refunds.

Even legitimate services can only operate within the confines of IRS regulations. Regardless of promises made, taxpayers must still comply with IRS guidelines. It’s essential to exercise caution and understand that there are limits to what these services can achieve.

Tax relief services often present themselves as quick fixes for back taxes, but the reality is more nuanced. While they may tout success stories of saving customers significant sums, many of these outcomes could have been achieved through independent negotiation with the IRS. These services may be beneficial if you lack the time or expertise to navigate tax laws and forms independently, particularly if English isn’t your first language. However, hiring a tax attorney, CPA, or Enrolled Agent may offer more tailored and effective assistance.

Engaging a third party in the process can prolong resolution times due to additional communication layers and the associated costs. Ultimately, reaching out to the IRS directly, armed with research and knowledge, can often yield favorable outcomes while saving on expenses.