Let’s start off by saying that you should always file your taxes as accurately as possible and that any and all payments that need to be made to the IRS, whether upfront or in installments, should be done so accordingly.
But if you happen to find yourself with an overwhelming outstanding tax balance or with a number of severe penalties, it may be tempting to seek out the services of an IRS tax settlement firm. When facing a significant financial crisis or the seizure of personal or business assets, it can be difficult to identify what needs to be done and how to go about it. So, when a tax settlement firm offers to help you cope with, or even completely eliminate, your tax debt, you may be enticed by the offer.
What are these firms exactly and can they really deliver what they promise? This article goes into detail about what tax settlement firms are, what they can do for you, and just how successful they are.
Similar to other debt settlement firms that offer debt relief or debt adjusting, a tax settlement firm specifically focuses on tax settlement claims and state that they can help you combat, minimize, or completely eradicate the debt you owe the IRS.
Many of these companies promote the fact that they are operated by former IRS employees, professional tax experts, and lawyers who understand the system and know the loopholes which they can navigate you through. This may be a substantial misrepresentation and it’s probable that a majority of the employees at the firm have no such credibility under their belts. It’s actually more likely that the people who work on your case at the firm are minimum-wage customer service representatives.
One of the biggest promises that a tax settlement firm makes is that their team of experts (i.e., their group of so-called former IRS employees, professional tax experts, and lawyers) can negotiate with the IRS on your behalf to lower the amount that is owed. They tell you that they can persuade the IRS with valid deductions and reasoning to accept a much smaller offer than the original amount, often pennies on the dollar.
In reality, know that this is almost impossible to accomplish. The IRS very rarely allows for any reductions in the tax amount owed and the only reasons that are taken into consideration are if the taxpayer is unable to obtain any type of gainful employment and that they have no assets at all that could meaningfully cover the required tax liability. The only other reason would be if the taxpayer is near death.
First, you should know that an auditor’s review and the supposed tax amount owed that is listed is not be all end all. If you are audited and don’t agree with the numbers, appeal their audit - it may save you thousands of dollars.
You can do this on your own, without anyone’s help. If you choose to go with a tax settlement firm, they may not be able to reduce your amount, but they can probably get you an extended amount of time for you to pay your taxes off.
That being said, there is something called an “offer in compromise”, which is an accepted IRS procedure that you can make with the IRS to settle at once for a slightly lesser amount than what is owned. You will have to supply substantial information about your current assets, liabilities, and projected future income. And even after providing them with everything they ask, the chances of your offer-in-compromise application being approved is extremely low.
The number of clients who use the services of a tax settlement firm and end up with a successful conclusion are below 10%. Chances are you’ll end up spending thousands just for their services without reducing even a fragment of that from the amount you owe to the IRS. Your best bet is to appeal your audit and then work out a payment plan so that you can clear your tax balance with a number of assets and your dignity - and you don’t need a tax settlement firm to do that.