Legacy Law Blog

If you owe the Internal Revenue Service (IRS) or a state taxing authority, the ads are everywhere: “Settle your tax debt for pennies on the dollar,” “Stop wage garnishments,” or “Get immediate tax forgiveness.”

The problem is not that tax resolution is illegitimate. The problem is that many highly marketed “tax relief” businesses sell a result before anyone has performed the factual and legal analyses necessary to determine whether that result is possible.

Tax debt resolution is not a product you buy off the shelf. It is a process that depends on the source and age of the liability, the accuracy of the assessment, filing compliance, income, assets, expenses, collection status and the resolution options actually available when you contact the state or IRS to resolve your debt.

The unfortunate side effect of this is that many taxpayers end up paying thousands or in some cases tens of thousands of dollars to "tax professionals" who fail to deliver on their promises and often leave taxpayers in worse shape than when they were first hired.

The Marketing Often Gets Ahead of the Facts

The biggest telltale sign that a "tax professional" may not be up to the task of resolving your debts with taxing authorities is that they start with a promise of a certain result before doing any analysis of your tax transcript.

Any legitimate resolution analysis begins with questions—not promises. Why is there a balance due? Have all required returns been filed? Is the liability correct? Is the account assigned to an IRS or state revenue officer, or is it in active collection? Are liens, levies, wage garnishments or bank levies involved? Does the taxpayer have the financial profile necessary for an installment agreement, currently-not-collectible status, penalty relief, audit reconsideration, innocent-spouse relief or an offer in compromise?

No responsible professional can promise an accepted offer in compromise, a specific settlement amount or complete elimination of penalties before reviewing the relevant facts and financial records. The Michigan Department of Attorney General specifically warns consumers about companies that promise to settle IRS debt for “pennies on the dollar,” guarantee dramatic debt reductions, prey on fear of the IRS or make promises before assessing the taxpayer’s financial situation and the reason for the debt.

The Federal Trade Commission likewise warns that unexpected contacts offering to resolve a claimed tax problem may be scams, particularly where callers seek personal or financial information or use pressure tactics.

“We Have Attorneys” is not Enough

Many tax-resolution businesses advertise that they have attorneys, Certified Public Accountants (CPAs) and enrolled agents “on staff.” That statement alone does not tell a prospective client who will actually work on the file.

Taxpayers are often alarmed to learn that their contact at the business is not an attorney or other credentialled professional at all but is instead a person with no training who is managing the case.

Fortunately, taxpayers can begin to better understand what representation they are paying for by asking a few questions before signing an engagement agreement.

The critical questions to ask any potential tax resolution business are straightforward:

1. Is the business itself a law firm, or is it a marketing company that refers files internally or externally?
2. Who will conduct the initial analysis of my case?
3. How will the transcript or other information needed to analyze my matter be collected (i.e., by software, calling the IRS/state, some other way)?
4. Who will communicate with the IRS or state taxing authority on my behalf?
5. Who will review my transcripts, notices, returns, financial statements and supporting documentation?
6. Is the professional assigned to my matter licensed or credentialed?
7. Has the professional assigned to my matter practiced before the IRS for very long? If so, how many years?
8. May I speak directly with that professional before I retain the firm?
9. If an attorney will not work directly on my matter, will an attorney evaluate potential legal arguments, procedural defenses, collection issues and litigation risks?
10. Will the engagement agreement identify the professional responsible for my case?
11. Is the retainer required to begin my matter the full amount of what it should cost to fully resolve my balance(s) with the IRS and/or state?

An enrolled agent or CPA may be highly capable and can provide valuable representation before the IRS. But a taxpayer should not assume that an advertisement referencing “tax attorneys” means an attorney will personally analyze or manage the engagement.

The right professional depends on the facts, but the taxpayer deserves transparency about credentials, authority, experience and responsibility. As with anything else, you deserve to know what you’re getting for your money and make an informed decision as to whether you want your matter to be assigned to a tax attorney or a lesser credentialed individual.

Why Experience Changes the Strategy

Tax resolution is not limited to asking the IRS or state for a payment plan. A careful review may reveal that the proper path is something else entirely. Often, the right answer for a taxpayer is the combination of several resolution options over a period of time.

For example, a taxpayer who has received collection notices may need an installment agreement. Another may qualify for currently-not-collectible status because required living expenses leave no ability to make payments. A third may have an incorrect assessment based on a substitute-for-return filing, unreported basis in assets, a missing deduction, a payroll-tax issue or a procedural defect. Yet another may need penalty-abatement advocacy, collection due process representation, an appeal or litigation-related advice.

Many tax resolution businesses advertise that they will get a taxpayer approval for an offer in compromise that will settle any tax balance for pennies on the dollar. But these promises hide the fact that the IRS rejects a high number of offers outright because the taxpayer simply doesn’t qualify for it.

An offer in compromise is one possible tool to resolve tax balances with the IRS or state. It is not the default answer to every tax debt. It requires a fact-specific analysis of the taxpayer’s reasonable collection potential, assets, income, allowable expenses and compliance history. Pushing every taxpayer toward an offer without first examining alternatives can waste time, create unnecessary fees and leave the underlying collection problem unresolved.

Red Flags to Watch For

When making the decision about whom to hire to be your advocate with the IRS, there are red flags that taxpayers can watch for that can be clues to the idea that you should look elsewhere for competent tax representation.

Taxpayers should proceed carefully if a business or firm:

1. Promises to settle a tax debt for a specific fraction of the balance before reviewing financial information.
2. Guarantees that the IRS will accept an offer in compromise
3. Demands substantial fees before explaining the work to be performed
4. Uses high-pressure sales tactics or insists that an agreement must be signed immediately
5. Will not identify the attorney, CPA or enrolled agent who will handle the case
6. Has a salesperson perform the “consultation” but offers no direct access to the professional or attorney assigned to the matter
7. Cannot explain why the tax is owed or what procedural stage the case has reached
8. Offers a standardized solution without reviewing IRS transcripts, notices, returns and financial documentation
9. Will not provide a clear written engagement agreement, fee structure, scope of work and refund policy for any unused retainer or upfront fees
10. Refuses to discuss whether a simpler or less expensive option may be available

If one or more of these red flags is present at any point during your consultation call with the tax business, it is likely appropriate to consider other alternatives.

How to Vet a Tax Resolution Professional

Before hiring anyone, take a few practical steps:

1. Verify professional credentials. The IRS Directory of Federal Tax Return Preparers can help taxpayers locate professionals with recognized credentials or select qualifications.
2. Verify an attorney’s license and disciplinary standing through the appropriate state bar.
3. Ask for the name, title and credentials of the individual who will be responsible for your file.
4. Confirm whether that person has handled matters involving your specific issue, such as payroll taxes, non-filed returns, liens, levies, revenue officer matters, state-tax collections, penalty abatement or offers in compromise.
5. Request a written explanation of the anticipated strategy and the facts that must be reviewed before a recommendation can be made.
6. Understand the fee arrangement, including what work is included, what work is excluded, and whether additional charges may apply.
7. Review independent complaints and disciplinary history rather than relying solely on testimonials or advertising claims.
8. Obtain a second opinion before paying a substantial advance fee.

The IRS advises taxpayers to check a preparer’s qualifications and select a professional who will be available after filing season or after the immediate engagement, particularly if questions arise about the work performed.

A Better Standard for Tax Resolution

The right tax resolution professional does not begin by selling a slogan or a quick fix. Instead, they should begin by diagnosing the problem that led to the tax balances and any other relevant information to ensure that the resolution is appropriate and is most economical for the taxpayer.

That means gathering IRS or state records, determining what is actually owed, identifying deadlines and enforcement risks, reviewing the client’s financial circumstances, and explaining the available options honestly. It also means recognizing when the matter involves legal questions, procedural rights, tax controversy, collection exposure or potential litigation that calls for experienced tax counsel.

If you are facing IRS or state tax debt, ask more than whether a company can “settle” your balance. Ask who will handle your case, what they are qualified to do, what they have learned about your facts and why the recommended approach fits your circumstances. The quality of those answers may be the difference between a genuine resolution strategy and an expensive sales pitch.