The Internal Revenue Service (IRS) allows taxpayers owing back taxes to negotiate the specific amount they pay, but only under special circumstances. In general, and because of the strictness of these regulations, reducing the amount of owed back taxes is generally very difficult. Although some companies offer to help you negotiate and lower the amount of taxes you owe, these companies are not always legitimate.
Types of Tax Settlements
The IRS gains very little by excusing you from your tax obligations. Because of this, the IRS is often reluctant to negotiate or enter into a settlement agreement.
According to BackTaxesHelp.com, the IRS provides payment plan options to taxpayers unable to pay their amount of overdue taxes. The rates and conditions of these plans depend mainly on the taxpayer's circumstances. Sometimes, they may be assessed additional penalties for paying their tax obligations over time.
The IRS also provides an Offer in Compromise to taxpayers unable to pay their tax obligations and unable to fulfill the obligations of a payment plan. These offers usually significantly reduce the amount of taxes the taxpayer pays. However, they are extremely rare. For the IRS to agree to one, it has to find that the taxpayer's financial situation is so severely restricted that it quite possible that the government will receive no money at all from them.
Tax settlement companies advertise that they will assist you with negotiating your tax obligations with the IRS. Job duties they may claim to perform include establishing a payment plan and eliminating all or some of your tax debt.
Some of these tax settlement companies are scams. They charge you an up-front fee for their services, stating that they cannot do any work until you have signed a contract and paid them for their time. Subsequently, they disappear into thin air, and your tax problems remain the same. The ease of using the Internet and faxes make it possible for these companies to scam you without ever meeting you face-to-face.
According to CNBC, there is one main reason why these settlement companies are scams: they promise you results despite having no control over what the IRS does or agrees to. In reality, entering into a settlement agreement is entirely the IRS decision. Tax settlement companies, therefore, have absolutely no basis upon which to promise the results they claim to induce.
Avoiding Tax Settlement Scams
According to Bankrate.com, it's relatively easy to determine whether a tax settlement offer is a scam: consider whether it seems too good to be true and, if it does, it's probably a scam. According to information published by Pennsylvania Feduciary Litigation, there are several indications that the offer is a scam, including:
- Promising a settlement
- Promising a settlement for pennies on the dollar
- Promising elimination of all penalties and other fees you accrued over time
- Not investigating your financial situation before accepting to work for you
Requiring up-front payment is not necessarily an automatic indication that the offer is a scam. After all, many attorneys and accountants may require a deposit before they start working on your behalf. The difference is that attorneys and accountants are licensed and regulated by the state. If a tax settlement company cannot provide you with their professional license or evidence that the employees are attorneys or accountants, it is likely a scam.
Negotiating Your Tax Settlement
You do not necessarily need to hire a company to assist you with your tax settlement. If you want help, seek the advice of a licensed tax attorney. An attorney will review your situation and discuss your chances of negotiating a tax settlement.