How Can You Tell if a Tax Debt Relief Company Is Legit?
In determining whether a tax debt relief company is worth your time and won’t lead to more problems in the future, time is your friend. For years, the FTC has worked to root out fraudulent tax debt relief companies. The longer a company has been in operation, the less likely that it’s a fraud.
It’s also beneficial to look up the company’s rating with the Better Business Bureau, where you can see how a company fares in the industry and any complaints leveled against it by consumers.
Do You Want to Settle Your Tax Debt in Full?
The answer to this question depends largely on your individual financial situation. If you can pay in full, the IRS will make sure you do. To make that determination, the agency takes your monthly income, your assets and other factors into account. If you can’t pay it in full with one payment, it might be a good idea to reach out to a tax debt relief company to negotiate a payment plan with the IRS.
In certain cases, a tax debt relief service will negotiate with the IRS to settle your debt for a smaller amount. This process, known as the offer in compromise (OIC), is a very specific solution with many requirements. If you do not meet those requirements, you will not be approved for an OIC.
Can You Negotiate Debt With the IRS?
Depending on your situation and the amount you owe, it is possible to negotiate directly with the IRS. Some tax debt relief companies will suggest you handle it yourself instead of using their services, since their costs could exceed what you owe to the government. In those cases, a representative will at least point you in the right direction.
Since the U.S. tax code is so cumbersome, it may be in your best interest to hire a tax debt relief company to negotiate in your stead. Only certified public accountants, enrolled agents and tax attorneys can represent you in front of the IRS.
How Far Back Can the IRS Collect Unfiled Taxes?
The IRS has a long memory when it comes to the money you owe. Generally, the IRS has three years to audit you and determine whether you owe more taxes. If it feels you have committed fraud or other criminal tax activities, it could extend the statute of limitations for audits. If the IRS believes you underreported more than 25% of your gross income, or if the same amount was underreported in an estate or gifts given in a year, the agency can audit you within six years. If you are found to owe taxes to the IRS, the agency has 10 years to collect any unpaid taxes.
When Are the Best Times to Contact a Tax Debt Relief Service?
It’s never a great time to contact a tax debt relief service, because that means you’re in trouble (or about to be) with the IRS. Still, if you have a massive past-due tax bill and think you need professional help, you should absolutely reach out. An unpaid bill can balloon quickly, thanks to penalties and fees levied by the IRS, so reaching out for help from a tax debt relief service is one way to deal with the situation.
You should also consider a tax debt relief service in the following situations: you want to seek an OIC to have your debt forgiven, there’s a lien on your business or personal property or you want to establish an affordable tax debt repayment plan. Tax debt relief services can act as a middleman between you and the government, with the ability to facilitate negotiations.
Who Might Need Tax Debt Relief?
If you’re having any issue with unpaid back taxes, liens on your property, wage garnishments or related issues, you need a tax debt relief service. If you’re just having trouble filing your taxes or facing some other tax issue not related to debt, you should not seek assistance from a tax debt relief professional.
Does the IRS Forgive Tax Debt After 10 Years?
The IRS may not want the general public to realize this, but the agency has 10 years to collect on any debts it’s owed. Known as the Collection Statute Expiration Date (CSED), this mandate requires the IRS to expunge any tax debt after a decade. While that may seem clear cut, the IRS won’t sit idly by if you try to wait it out for 10 years. Over time, the agency’s debt collection efforts will become increasingly aggressive, with wage garnishments, tax liens, and other tactics firmly on the table. Additionally, your CSED can change, since there are provisions to let the IRS pause and restart the process if necessary.
Does the IRS Forgive Tax Debt?
Though the IRS is widely seen as an antagonistic government agency, it does have programs in place to alleviate the tax debt problem for some. Measures such as the OIC can start the forgiveness process. For example, your tax debt could be forgiven if it’s deemed to have low “realistic collection potential,” meaning it’s very unlikely for the debt to be paid because you have a low income, no assets to seize and sell, and no way to make the payments. The IRS has other tax debt forgiveness measures, but the eligibility requirements are stringent.
What is the Minimum Monthly Payment for an IRS Installment Plan?
When you settle your tax debt through an IRS installment plan, the amount you owe greatly influences how much your minimum monthly payments will be, since the IRS suggests that you pay as much as you can to lessen the sting of additional penalties and interest. However, the IRS also considers the nature of your debt and the agreement behind the repayment plan.
Though the IRS lets its debtors select their own monthly payment amount, that’s not necessarily how much they will have to pay. If a debtor doesn’t select a monthly payment amount, sets the bar too low, or lets the IRS decide, the payment amount defaults to the owed amount divided by 72 equal monthly payments.
What Can the IRS Do to You When You Have Tax Debt?
If you’re in debt to the IRS, you have likely already begun facing the consequences, starting with numerous notices. If you’ve ignored those notices, you will immediately be placed into collections, at which point your bank accounts and wages can be levied by the federal government.
Additional punitive actions that the IRS can take against you and your business include confiscating your tax refund as payment, charging additional interest on your tax bill, and hitting you with additional penalties, like the “failure to pay” penalty. Ultimately, the IRS can file a notice of federal tax lien against you, meaning future creditors will know about your tax debt, thereby ruining your ability to sell or borrow against your assets.
Furthermore, the government can seize your money and assets, meaning the government can levy those items and sell them to pay off the debt. This rarely happens, though, given the difficult process that such an action requires.
Ultimately, you could be barred from leaving the country, and your debt could be handed over to a collection agency, at which point you will likely be hassled by collectors to settle the debt.
Does settling your tax debt with the IRS affect your credit score?
Like most debt, your tax debt does affect your credit score. Though unpaid taxes haven’t directly hurt credit scores since April 2018, tax debt will harm your credit score if the IRS files a notice of federal tax lien against you, since that will be reported to the three credit bureaus. In any case, you will receive plenty of notice from the IRS before your credit score is affected.
How much will I pay a tax relief company for its services?
Most tax debt relief companies charge an upfront fee. Each of our best picks charge a flat fee, but prices vary based on your situation and its complexity. If your case is complicated, it will take more hours and thus cost more.
Based on business.com’s research, the cheapest tax debt relief service we found cost $1,500, while the most expensive was $4,250.
What are the signs of a tax relief scam?
Scammers abound in the tax debt relief market – you have to be savvy when hiring a firm. You don’t want to shell out money and not get help in return. There are several telltale signs that can clue you in as to whether a company is running a tax relief scam.
- The company requests a large, upfront payment. No reputable business should charge you a large, upfront fee for services not rendered. They may require an initial payment, but not a huge one.
- They make misleading representations. Many scammers find their victims by sending unsolicited emails, texts and letters that appear to be from a government entity such as the IRS. They may claim you qualify for a government program to settle your debt. Before paying money to a tax debt relief company, research them thoroughly, rather than respond to an unsolicited email or text.
- The messaging is too good to be true. A lot of fraudsters appeal to your need for immediate help. If the company claims to settle debt for pennies on the dollar, slash what you owe by impressive amounts, or remove penalties and interest, that should raise a red flag.
- The agency conducts little due diligence. A telltale sign that a tax debt relief company is not legitimate is how it handles your case, or more precisely, that it doesn’t handle your case. If it fails to assess your financial background and/or doesn’t inquire about why you owe taxes, alarm bells should go off.
How do you qualify for tax forgiveness?
The IRS may forgive your tax debt through its Fresh Start Program. The program is designed to help struggling taxpayers substantially reduce their tax liabilities. The IRS can reduce or freeze the debt, or cut the size of your payments. The relief that is afforded to you depends on your financial situation. There are some requirements to qualify for the program, including:
- Self-employed filers must show a 25% decline in net income.
- Joint filers cannot earn more than $200,000 a year. Single filers cannot earn more than $100,000 annually.
- You must have a tax balance of $50,000 or less at the end of the year.
What happens during a free tax debt consultation?
Reputable tax debt relief service providers typically offer a free consultation (or a consultation at a reduced price) before bringing you on as a client. A tax professional can’t truly assess the extent of work involved or give you an accurate estimate of how long it will take and cost to resolve your tax debt without first understanding your financial situation. During the consultation, you’ll be able to explain your predicament, answer questions the service has, and ask them questions. A good tax debt relief company will help assess your situation first before devising a plan.
How does a tax relief company charge for its services?
Several factors go into the cost of tax debt relief services, such as how much money you owe the IRS, how old the tax debt is and how complicated the situation is. Tax debt relief companies can charge a flat percentage of the amount you owe to the IRS – which can be as much as 10% – or they may charge by the hour. The hourly rate can range from $275 to $1,000, depending on the complexity of your case. All of our best picks charge a flat rate on a case-by-case basis. Based on our research, $1,500 was the cheapest service and $4,250 was the most pricey.
What is the IRS Fresh Start program?
The IRS offers taxpayers tax debt relief options under its Fresh Start program. The program is a collection of changes made to the tax code that helps taxpayers reduce their IRS debt. Through the program, taxpayers can reduce or “freeze” their debt, or they can pay it off in smaller installments with longer terms. Eligibility is based on your financial situation.
What Is an Offer In Compromise?
An OIC allows small business owners to settle their tax bill for a reduced amount. If you can’t pay your tax debt in full, or doing so will create a financial hardship for you, you may be able to reach a deal with the IRS. The IRS assesses your ability to pay, your income, expenses and assets. The IRS typically accepts an OIC when the amount proposed is the most it expects to collect within a reasonable period of time. Tax debt relief companies will file an OIC on your behalf if that option is available to you.
Does Tax Relief Really Work?
It can be very difficult to reach a settlement on your own with the IRS to reduce your tax debt. If you are DIYing it, you are required to file IRS Form 656, which is the application for an OIC. The IRS rarely approves OICs. It is not impossible, but it requires a lot of work, which is why many small business owners hire a tax debt relief company.
How much should I offer in compromise to the IRS?
The IRS says it will only accept offers that are equal to or more than the reasonable collection potential or RCP. That measures the taxpayer’s ability to pay what is owed. The IRS considers your assets including real estate, vehicles and bank accounts when determining the RCP. The IRS also considers future income excluding money necessary for living expenses.
If I owe taxes to the IRS, can I still get a passport?
If you have what the IRS considers to be seriously delinquent debt, it can turn your case over to the State Department. After hearing from the IRS, the State Department may decide not to issue or renew your passport. It can even revoke it. The IRS will certify you with the State Department if you have tax debt including interest and penalties of more than $54,000 and all efforts and remedies have been exhausted and levies issued. The IRS won’t alert the State Department if you are making payments via an IRS approved installment agreement or Offer in Compromise.
How long can you not pay taxes before the IRS can’t chase after you?
The IRS can come after your unpaid taxes for up to 10 years. It has three years to audit a tax return. Known as the IRS Statues of Limitations, after that, you will no longer owe the IRS any money.
Will you go to jail for not paying taxes?
The IRS won’t put you in jail if you fall behind on paying back taxes, but if you purposely evade paying taxes it will try. Some of the offenses that can land you behind bars for up to five years include failing to file a tax return, helping someone else avoid filing tax returns, and any other actions that enable you to avoid paying taxes including filing a fake claim.
What are the different types of installment agreements the IRS accepts?
For business owners who can’t afford to pay the debt they owe in full, the IRS offers installment plans. With an installment agreement, you agree to pay back a certain amount over a set upon number of months. The IRS offers the following installment agreements:
- Guaranteed Installment Agreement: This installment plan is only for individuals who owe the IRS $10,000 or less. With this plan, you agree to pay off the debt within three years. The IRS will not file a federal tax lien, which means you won’t have difficulty obtaining credit in the future. This plan is attractive because payments can be as small as $25 a month, but you do have to pay it back within the three-year term.
- Non-Disclosure Installment Agreement: This plan is for business owners who owe less than $25,000. You don’t have to disclose any financial information to the IRS and you have seven years to pay off your debt. With this installment agreement, the IRS doesn’t place a tax lien on your name or business.
- Streamlined Installment Agreements: The Streamlined Installment Agreement is for individuals with debt of $50,000 and under. You have up to seven years to pay off the debt. You may be required to provide some financial documentation to get approved for this plan.
- Partial Payment Installment Agreements: This plan is for people who can’t pay back the IRS in full without it having a major impact on their finances. With this plan, the IRS adjusts the payments to make them affordable to you. The IRS does place a lien on your while you pay off the debt.
What are other ways to pay back the IRS?
For individuals who do not have the money to pay back the IRS, there are other ways to pay down debt. Although not ideal, they include using a credit card or refinancing your mortgage. The IRS accepts all major credit cards to pay off a tax bill. While you are just replacing one debt with another, you may be better off without the IRS chasing you down. Keep in mind, you will be charged interest by the credit card provider when going this route.
Refinancing your home to access the equity you built up is another option. This only makes sense if you will get a better interest rate on your mortgage. As a bonus, you will be able to deduct the interest on your mortgage when you file taxes.
Should I file my taxes if I already owe the IRS money?
It is vital to file your quarterly and/or annual taxes even if you owe the IRS fines or back taxes. If you don’t, you could face even more fines and fees. Those who don’t file their taxes on time are automatically hit with a 5% penalty for each month the taxes go unfiled. The penalty tops out at 25%. On top of that, there is interest accrued from the unfiled taxes. If you think you won’t be able to file your taxes on time, complete IRS Form 4868, which gives you a six-month extension.