How can I lower what I owe the IRS? Is there a way I can reduce my tax debt? These are questions many Americans ask every year, to which they often never receive an answer. Taxpayers having difficulty paying their tax debts may feel like they’re sinking in a deep, dark Internal Revenue Service hole.
The good news is that there tax relief options available. Tax relief companies can help taxpayers apply for these programs and lower their tax debt. They can also provide guidance on audits, apply for penalty abatements, remove wage garnishments, and negotiate installment agreements with the IRS.
These are just a few of the ways that accredited companies can help. However, tax relief companies are not cheap, and the quality of their services varies widely from company to company. The best tax relief companies have tax lawyers and enrolled agents on staff, provide a money-back guarantee, and charge competitive rates. In a perfect world, you would always pay off all your tax debts on time before the IRS comes knocking. However, things don’t always work like that in the real world.
If you are struggling to pay your tax debts, it may be worth seeking the help of professionals. But do tax relief companies really work?
Before diving into the potential benefits of a tax relief company, it’s important to note that not all tax relief companies are trustworthy. Some companies try to scam taxpayers by promising they can make tax debt disappear while misrepresenting how long the process takes lessen or get rid of tax debts.
The Federal Trade Commission, which receives complaints from scammed taxpayers, says that “in many cases, [the companies] don’t settle the tax debt, and don’t even send the necessary paperwork to the IRS requesting participation in the programs that were mentioned.” (Source)
Making things worse, sometimes the companies will ask for even more money or refuse refunds to taxpayers who thought they were getting a good deal. Thousands of dollars are extorted from unsuspecting citizens every year from scams like this.
When it comes to tax relief companies, make sure to ask if the company has licensed tax attorneys on staff and if it has a money-back guarantee. If a company says they can guarantee to solve all your tax problems—run away. Nobody can guarantee that.
What is tax relief?
Tax relief includes any program or method that helps taxpayers pay off their tax debt. Some programs, such as installment agreements, give you more time to pay. Other programs reduce your debt, such as offers in compromise or the penalty abatement program.
When done correctly, tax relief programs are a win-win for the IRS and taxpayers. The IRS knows the longer taxpayers are behind on their taxes, the less likely they are to pay. According to a study carried out by the Taxpayers Advocate Service, the IRS collects twice as much on delinquent accounts in the first year than in the second year; and three times as much in the first year as in the third year.
These tax hardship programs give taxpayers a way to settle delinquent tax debt and avoid the tax liens, levies, and wage garnishments the IRS can impose. At the same time, tax relief programs help the IRS increase revenue.
Unfortunately for taxpayers, tax relief programs are typically hard to apply for and even more challenging to qualify for. Negotiating with the IRS is a complex and lengthy process that many taxpayers can’t manage without help. Just getting in touch with an IRS agent can be a challenge. A 2015 survey by the Taxpayer Advocate Service reported the IRS answered only 37% of taxpayers’ calls routed to customer service representatives.
Complexity and a lack of resources have helped create a niche for tax relief companies that provide representation to taxpayers applying for tax relief programs before the IRS.
Tax relief programs offered by the IRS include:
- Installment agreements.
- Currently not collectible status.
- Offer in compromise.
- Bank levy release.
- Tax lien release.
- Penalty abatement.
- Innocent spouse relief.
Every year the IRS writes off billions of dollars in bad tax debt. However, that tax forgiveness is not spread evenly. Tax relief programs can help the IRS collect more revenue and reduce the hardship of tax debt on taxpayers. The problem is not all taxpayers know how tax relief works or what programs are available.
How real tax relief companies work
Tax relief companies can be helpful for the hundreds of American sinking under tax debt who don’t know how to approach the problem.
These companies employ trained tax professionals who know the ins and outs of the tax code and can help walk you through various financial options. They can help you reduce your debt, reduce or waive penalties, or arrange for payments in installments.
In some cases, having a professional act on your behalf now may reduce the possibility of the IRS taking even harsher measures such as seizing your property. Fees for such services can run anywhere from $2,000 to $10,000. The way they lower your debt is by convincing the IRS you absolutely cannot pay your debt and don’t have assets such as property worth seizing.
The IRS instituted the Fresh Start program for struggling taxpayers. Those who qualify can form agreements in which they pay debts back in installments (for debts up to $50,000) or settling for less than they owe (called an offer in compromise) if the IRS believes it can only collect that small amount from the debtor.
However, it’s up to the IRS to decide if it will accept a situation where you pay back less than the full debt you owe. No matter how skilled a tax attorney is, he cannot change your actual conditions.
How to find the best tax relief company
Finding a tax relief company that fits your needs can be a challenge. This is our list of the best tax relief companies available based on our algorithms and consumer reviews.
Although there are many scams, knowing the right questions to ask can help you avoid them.
If you aren’t sure which company to hire, click here to get a free consultation with a tax relief expert. You can also check out SuperMoney’s tax relief reviews page to compare all the top companies.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.