Beware of Tax Relief Scams
If you have unpaid tax obligations and are looking for help to resolve them, you should be careful to avoid hiring tax relief companies that charge you money to help you but end up making a bad situation worse.
Beware of Bogus Promises to Settle Your Tax Obligations
Some companies seek to exploit the fact that some Minnesotans are behind on their taxes. Some companies have television advertising campaigns that lure customers with claims that the companies have special expertise or knowledge that enables them to settle customers’ tax obligations for pennies on the dollar. The companies may require the consumer to pay up-front fees of $3,000 or more. Once the consumer pays the money, however, some companies fail to deliver the promised services. Some do nothing at all. Other companies will send a consumer forms to apply to the IRS for an “Offer in Compromise,” which the company knows will be rejected because of the IRS’s strict guidelines for debt forgiveness under that program (see below). The end result: the consumer is now $3,000 or more in the hole.
Attempt to Work with the Tax Authorities
As a part of their sales pitches, tax relief companies may tell you that the tax authorities won’t work with you. If you owe money to the tax authorities, don’t ignore the problem. Call the IRS or the state and local tax authorities to address any tax issues. These entities may be willing to establish a payment plan. In fact, the IRS enters into payment plans with over two million taxpayers each year. Also, consider hiring a reputable local certified public accountant or tax attorney to help you if you are in over your head.
Offers in Compromise. Some tax relief companies lure customers in by claiming that they can cut customers’ debts by filing an Offer in Compromise (“OIC”) with the IRS. The IRS, however, has strict guidelines to qualify for the OIC program. The majority of debtors do not qualify. The IRS has published a consumer alert cautioning consumers not to be lured by promises that companies can settle tax obligations on the cheap through OIC’s. Chances are that if you have $2,000 - $5,000 dollars to pay a tax relief company, you likely will not qualify for the IRS’s OIC program. Companies will take your money, but after filing an OIC petition that they know, or should know, will be unsuccessful, they may do nothing else for you and won’t refund your money. Contact the IRS directly to see if you will qualify for the OIC program, or download the forms, which are easy to fill out on your own, directly from the IRS website, www.irs.gov.
Other Tips for Consumers:
1. Research the companies you are considering.
Before you use any tax relief organization, check with the Better Business Bureau at:
Better Business Bureau of Minnesota and North Dakota
220 South River Ridge Circle
Burnsville, MN 55337
(651) 699-1111 or (800) 646-6222
2. Contact the tax authorities at the first sign of trouble.
Do not ignore problems—they won’t go away. Contact the IRS directly at the first sign of trouble. It may enter into an installment payment plan with you to come current on your obligations. Also, before you hire a tax relief company to try to settle your bills, check with the IRS directly to see if you even qualify for its Offer in Compromise (“OIC”) program. Successful offers usually are given only to those in dire straits. Of the approximately 68,000 Offers in Compromise submitted in 2014, the IRS only accepted about 27,000.
3. Sound too good to be true?
Some tax relief companies may guarantee to lower your tax obligations. Others might tell you that they have “insider tips” or special expertise to get a favorable result with the tax authorities. Remember: if a promise sounds too good to be true — it is. Don’t do business with a firm that does not give you the biography of the attorney, certified public accountant, or tax agent who will actually work on your case.
4. Beware of money-back guarantees.
In order to allay consumers’ concerns, some tax relief companies promise money-back guarantees. These guarantees, however, often turn out to be unavailable to unsatisfied consumers. Don’t let a money-back guarantee give you a false sense of security.
5. Know the fees.
Tax relief companies are prohibited under the law from charging up-front fees. Ask whether there are any up-front fees and avoid companies that charge you before performing any services.
6. Watch the fine print.
Tax relief companies may have you sign written contracts with terms that differ from what they tell you on the phone. For example, the tax relief company may tell you that your onetime fee will cover all services required to reduce your tax obligations, while the contract will say that the initial payment is for limited services, and that additional services will require additional payments. Read the fine print of any contract. If the contract says something different than what you are told in person or over the phone, do not sign it. Make sure all verbal promises are in writing.
7. A plan tailored to your needs.
A legitimate advisor should take time to understand your income and expenses, as well as the nature of your issues with the taxing authorities. Beware of any organization that gives you generic or “one size fits all” advice, or that promises it can help you before it’s fully reviewed your situation.
8. No quick fixes.
Remember: there is no magic solution toward getting out from under tax obligations. Beware of tax relief companies that promise that they can drastically reduce your debt.
9. Beware of companies that are acting illegally.
In 2016, the Minnesota Legislature amended its Debt Settlement Services Statute—Minnesota Statutes Chapter 332B—to include tax relief companies that target consumers who are behind on their taxes. In addition to a prohibition on up-front fees, the law requires that companies register with the Department of Commerce. You can find out if a company is registered by contacting the Department of Commerce as follows:
Minnesota Department of Commerce
85 7th Place East, Suite 280
St. Paul, MN 55101
(651) 539-1500 or (800) 657-3602
For more information, or to file a consumer complaint, contact the Attorney General’s Office at:
Office of Minnesota Attorney General Lori Swanson
445 Minnesota Street, Suite 1400
St. Paul, MN 55101
(651) 296-3353 or (800) 657-3787
TTY: (651) 297-7206 or TTY: (800) 366-4812
Tax Related Identity Theft and Other Tax Scams
The U.S. Treasury Inspector General for Tax Administration estimates that 1.6 million Americans were victims of tax related identity theft and refund scams in the first six months of 2013, an increase from 1.2 million in all of 2012. Don't let this happen to you! Be on alert for these common scams.
Debt Assistance Scams
There are no easy ways or quick fixes for getting out of debt. Attorney General Lori Swanson offers these tips so that consumers trying to do the right thing by getting help do not get bad and costly advice.
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