BY: THOMAS S. GROTH, ESQ (@tsgESQ)
With her piece at the Washington Post this week, Michelle Singletary tries to tell us that “Tax-relief ‘rescues’ are really a ruse.” She doesn’t even feel the need to qualify the statement. Is she on the IRS payroll?
I understand the urge to go after the entire industry, even if you are just re-purposing an FTC alert from a year ago. (The consumerist picked up the story here, and actually linked to the FTC alert.)
But, if the urge ever strikes you to write off an entire industry because that industry has bad people in it – I suggest you stop and think about it for a minute or two. It’s like swearing off the car industry because… pintos, or swearing off investment bankers because… Madoff. Even when you examine a field like the Tax Resolution industry (or as Singletary puts it “tax-relief ‘rescue'” industry), where one could argue that most of the players over-promise and under-deliver, the logic is the same. “These guys do it wrong, so everybody must be doing it wrong.”
Singletary proposes what some might consider a counter-intuitive approach – “.. you can apply for relief yourself” she says. Just call up the IRS and they “.. will try to see if you are qualified for other payment programs.” Yes, exactly. The debt collector is always going to tell you the best way to pay the least amount possible. Don’t worry if it is difficult to file for an installment agreement online she says: “[I]f you find the online process intimidating or confusing, call the IRS[.]” But then it gets even better. She prefaces something that is the opposite of a fact with the words “in fact.”
In fact, you have to exhaust other payment options before an OIC is accepted.
Maybe sometimes you should leave the advice to the professionals. Perhaps Singletary got mixed up when she was reading the one-year old “alert” over at the FTC. Which also includes the baseless misinformation:
The OIC is an important tool to help people in limited circumstances; taxpayers are eligible only after other payment options have been exhausted.
I’d challenge anyone to show me where exhaustion of other remedies is required before an Offer in Compromise will be accepted by the IRS. But I can actually show that the assertion is wrong just by using other correct information provided in the WaPo article:
If you owe $50,000 or less in combined tax, penalties and interest, you can set up a payment agreement and pay off your debt within six years without having to submit a financial statement, and it can even be done online.
Does that mean that anyone who owes $50,000.00 or less in tax debt can never qualify for an Offer in Compromise? Of course not.
But, if a consumer were to believe this bold and over-broad assertion – this new and baseless “exhaustion requirement” – cited in the FTC alert and the WaPo Article, s/he might think that if s/he qualifies for a streamlined installment agreement, an Offer in Compromise is off the table. Not true.
But that’s the problem with making over-broad assertions about things that take time, research, and diligence to understand – you will probably end up saying something that is terribly misleading.
To give a decent critique of the Tax Resolution industry, you need to understand how it works.
For some companies out there, it is all about the money. Just look up Tax Masters (bankrupt), JK Harris (bankrupt), or the Tax Lady (surrendered her law license). Big players in the Tax Resolution Industry got greedy, they didn’t deliver, and it all fell apart. But that isn’t news. What we’ve seen now – in television and radio advertising for tax relief- is a full 180 in how these ads-buys are funded.
It used to be that nationally televised ads were bought by Tax Resolution behemoths like Tax Masters or JK Harris.
But these days, you may have noticed that the ads for tax relief are more generic. Many still follow the Patrick Cox Method, but what they lack is any message about a particular brand. There’s a simple reason for this. Most ads you hear on the radio or television today for “new IRS programs” aren’t purchased by the company you will get if you call the “helpline.” Most of these spots are purchased by companies that sell leads to different tax shops throughout the country. When you call the number, you might get a law firm in Connecticut, a solo Enrolled Agent in Washington, or a CPA in Alabama. It’s like playing Russian Roulette with your “Tax rescue.” This is bad for accountability, because there is no big firm to point to. It’s bad because it leads to perverse incentives (if the intern or salesperson manning the phones doesn’t get your business on that call it is probably “goodbye” forever.) In the void left by Tax Masters and JK Harris, companies without any stake of the end result are delivering the message that tax debt settlement exists to the masses.
I wouldn’t hire a personal injury attorney because I saw his face on the side of the bus, and you shouldn’t hire a tax resolution company because a radio ad told you to “call now.”
But the alternative is to just try and figure it out on your own? Call the IRS directly? She could at least point out that if you don’t make too much there might be free tax help available from actual advocates.
The IRS is a Tax Machine. But the taxpayer (or his advocate) provides the input. Are you sure you are giving the IRS the best numbers possible? Are you sure you will give them all of the information they require, without giving them more than they deserve? You shouldn’t be so sure.
Bad input = bad outcome. How much do you pay every month for “food clothing and miscellaneous”? TRICK QUESTION. It doesn’t matter! If you live on your own, you pay $583 (as far as the IRS is concerned), not a dollar less. So you don’t need to decide if that 6-pack fits into the definition of “miscellaneous,” just use the government-provided standard. That’s a pretty straight-forward example. It’s right there in the instructions to Form 433-F.
When it is done right, the business of tax relief is much more than the numbers. It’s about coaching clients so that they avoid issues with the IRS going forward; it’s about education on compliance; it’s about protecting the due process rights of a tax payer. It’s about knowing when to put up a fight, and knowing when a new approach or angle should be considered. Don’t let the IRS turn you into a bunch of numbers; stand up for yourself and get help if you need it. But get real help. It does exist. The “rescue” from the IRS is about so much more than just paying less. It’s about being able to sleep at night knowing your bank accounts are safe, it’s about knowing that the IRS will stop harassing you once you are in a payment arrangement you can afford. It’s about knowing that you have somebody calling the IRS for collection holds and monitoring your case so that you have time to get your advocate the information they need to successfully negotiate that payment arrangement without the fear that your wages will be garnished.
Patrick Cox wasn’t wrong when he said “don’t take on the IRS by yourself.” I firmly believe that you should not. Just because Tax Masters did a terrible job of delivering on its promise to “help solve your tax problems,” and just because firms following that same broken sales-centric model continue to over-promise and under-deliver, it doesn’t mean you need to go it alone.
But just in case you were considering going it alone, maybe you should consider doing your next dental cleaning too. You can even learn how to do that for a small fee on Amazon.com!