If you are anticipating a tax refund, you must actually be getting butterflies in your stomach. What a feeling it is when you get an extra paycheck from IRS, right?
But what if you realize that you owe to IRS? It could possibly be because you have been amongst the willful defaulters in the past or you have unintentionally filed less than what you should have.
Whatever the case may be, if things come down to a reminder from the IRS, the stress and anxiety levels can feel claustrophobic.
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Tax debt relief companies claim to be your savior, they come wrapped up in a cloak and the promise to settle the debt with IRS.
Some of these superheroes are not heroes, in fact, they are Vendettas; outright scams. This write-up will help you avoid scams by telling you the dirty little secret of the tax debt relief industry.
What is Tax Debt Relief and Why does it Matter?
If you fail to pay taxes on time, you may be eligible for some tax debt relief. More often than not, this relief comes either in the form of payment or debt settlement with the IRS.
You can’t sit pretty after knowing that you owe to the IRS. The IRS charges a penalty of 0.5% of your unpaid taxes per month until the tax is paid in full. Interest starts to accrue from the day your taxes are due.
For instance, if you owe $2000 you couldn’t pay the balance in time, so after 6 months you will be charged a failure to pay a penalty of $60 plus the accrued interest.
That sounds like peanuts, however, if you don’t pay for a longer time, the penalty can be as much as a quarter part of your unpaid taxes.
What could be Worst?
The IRS can put a lien on your property if you don’t pay what you owe. A lien means a charge on your assets (including financial assets) which means that the IRS has a share in the worth of your assets. Moreover, the IRS has the power of seizing the money that is realized upon the selling of the asset by you.
Further, the IRS can put a tax levy on the assets which authorizes them to sell off the assets and recoup the taxes you owe to the IRS. Personal property such as masterpieces, artwork, jewelry, and other valuables are all liable to get tax levied.
Why you should be Wary of Tax Relief Companies
You must have come across hundreds of advertisements which portray taxpayers are distressed and broken people with no one to turn to.
The tax debt relief companies know how to strike the right chord with their prospective clients (or prey should we speak the truth).
Although, it is possible to settle your tax debt with IRS through an IRS offer in compromise also known as OIC.
These predatory companies or the companies with a guilty conscience (if you like) can charge thousands of dollars as non-refundable fees.
But there is no guaranteeing that they will deliver on their promise. The criteria are stringent; you shouldn’t have applied for bankruptcy, must have all the required documents handy etc.
We shall talk about this in great detail in the coming sections of this article.
Some of these fraudulent companies also foray into the scam territory by taking payments from you and not sending the necessary paperwork to IRS to apply for an OIC or a payment plan.
The FTC, the watchdog and the regulator of the market have even received complaints regarding the levying of unauthorized fees by some tax debt relief companies upfront.
Some companies also offer to get your tax settled by the way of pardon. Practically, this isn’t possible and such claims by any company must be the alarm raiser for you that this company is fraudulent.
Tell-Tale that a Tax-Debt-Relief company is a Scam
The predatory debt relief companies or the scammers know that being in debt to the IRS scares people to the core and they use this panic and fear to their advantage.
The FTC warns that a company who demands payments before negotiating on your behalf is an outright scam. Other signs are:-
- Ensuring pardoning of debt
- Guaranteeing to considerably reduce or eliminate your tax debt
- Promising to get a waiver on your penalties and interests
- Reaching out to you though unscrupulous emails
- Failing miserably in assessing your credit history and financial background. The IRS deeply scrutinizes your eligibility for an offer in compromise. So if the company doesn’t inquire much, means it is at fault.
- Deliberate procrastination
- Informing at a very later stage that the IRS has rejected your offer in compromise.
IRS Tax-Debt-Relief Options
1. Payment plans
If you can’t pay your taxes on the go, you can opt for a short term or a long term payment plan with the IRS. Caution: you ought to know that any payment plans won’t come without penalties and interests being charged on the unpaid balance.
The short term plan gives you the window of 120 days over which you can make automatic payments. You can make the payment using a checking account, debit or credit card or check to make payments.
Just in case you need 120 or more days to pay, the long term payment plan gives you a couple of options:
- Automatic payments from your checking account
- Pay manually by electronic payment method, money order or check:-
Unlike the short-term payment plan, the long term plan requires a set-up fee:
Automatic plan: $31 to apply online, $107 to apply by phone
Nonautomatic plan: $149 to apply online, $225 to apply by phone
Both automatic and non-automatic plan requires a $43 setup fee for low-income applicants based on government guidelines.
2. Offer in Compromise
As mentioned earlier, if your tax debt is so high that you can’t pay it back or to do so would create a financial hardship, the IRS might allow you to settle for less than what you owe.
Offer in compromise or OIC is just like a debt settlement plan where you have to pay few pennies on a dollar.
The IRS determines your eligibility for OIC based on the assessment of the following:-
- Ability to pay (based on streams of income you have)
- Asset equity (your assets minus your liabilities or debts)
Having said this, the IRS says that you ought to try all other payment options before applying for an offer in compromise.
Many states also have an OIC so it won’t cost a dime to ask your state whether it has such a program in place.
There are few private companies which have got a reputation to solve the most complicated of the tax debt issues and they are:-
Optima tax relief can negotiate taxes of $10,000 and even more for your sake. However, the service is a bit on the pricey side (nothing worth having comes easy) and there’s no assurance of your success as Optima is just like an arbitrator and not the final authority.
The Optima Tax Relief has a modus operandi as per which it investigates your financial situation and charges $495 for it.
After the critical analysis which runs over how much you owe and how long have owed for, Optima gives the final quote for its services.
Optima brings in its huge experience and expertise to the table. You will also find testimonials on the site stating that clients have got 90% of their debt pardoned through the services of the Optima; a solid reflection of Optima’s prowess as a negotiator.
Costs appear to fall within the range of $2,000 to $5,000, depending on your needs
Tax Defense Network is a tax debt relief company with 21 years of experience into negotiating tax debt with the IRS. It can resolve tax relief cases like Tax liens, Bank levies, IRS tax penalties, Wage garnishments, and Payroll tax issues etc.
Tax Defense Network offers professional help for a wide range of tax relief solutions including:
The fees that tax Defense Network charges may start at $3000 and may vary depending upon the complexity level of individual filer’s case.
Tax Defense Network evaluates your case for free but it doesn’t start to resolve it until you have made the full payment.
You must pay $500 for them to even start an investigation. Another important criterion is that you should have a tax debt of $7.5k or more.
The Tax Defense Network has tax professional; tax attorneys, and CPAs. Having certified accountants and tax attorneys gives it a leading agent over smaller companies that only employ enrolled agents who are incompetent to deal with complex tax issues.
If you are struggling to pay your taxes, you ought to look before leap i.e. re-think your decision of taking the help of a tax debt relief company.
If the tide doesn’t favor you, you could end up paying way too much than you could it for free (on your own). Worst, you could be robbed.
The best advice is to jump on the notice you get and solicit help from a government official.
The earlier you start working towards a solution, the lesser you would have to pay by the way of penalties and interests.