Are Tax Relief Companies Legit? Do They Work? A Deep Dive
The U.S. tax code is one of the most complicated in the world, and it's constantly changing. Filing correct and complete tax returns can be very challenging, especially if you have a complex tax situation or a business. Throw in random audits, IRS mistakes, and state tax issues, and you have the perfect storm for tax problems.
Individual and business taxpayers struggle with all kinds of problems, including unpaid taxes, unfiled returns, audits, assessments, and more. If they don't pay their taxes, they can face aggressive collection actions that threaten their homes, wages, bank accounts, and other assets. Traditionally, people handled tax problems themselves, or they turned to a local accountant for guidance.
But in the 1990s, this changed as tax relief companies came onto the landscape. These companies popped up with alleged missions of helping people with tax problems, but their real goals were to make as much money as possible. Unlike traditional accountants, these new "tax relief" companies didn't offer tax prep or planning services. Instead, they just focused on helping people deal with unpaid taxes.
Now, 30+ years later, there are countless tax relief firms devoted to helping people solve tax problems. It sounds good, but unfortunately, the industry is rife with poor business practices.
However, that doesn't necessarily mean that all tax relief companies are bad. The truth is a bit more nuanced, and if you have tax problems, you need to understand the differences between legitimate and illegitimate tax relief companies. To help you become a more informed consumer, we've put together this deep dive into tax relief companies, why they exist, and how you should choose a tax relief company when you're having tax problems.
Unmasking the Players: The Different Types of Tax Relief Firms
You can put tax relief companies into three main categories based on their sizes and business practices. The big production powerhouses pour a lot of money into advertising and they churn through high volumes of clients. The grassroots experts have small firms devoted to providing personalized solutions for tax problems, and they get a lot of word-of-mouth referrals from happy clients. The middleweights strike a balance between these two approaches. Let's take a closer look.
The Production Powerhouses
These big corporate-owned entities follow the lead of the first generation of tax relief companies. Most notably, they have huge advertising budgets and subpar services. These are the companies that you will see when you search for the "best tax relief companies" and you'll probably quickly notice that all of the review sites list the same five or six companies.
That's definitely not because these companies are the best. It's because they have the biggest marketing budgets and the largest reaches across the country.
To put it into perspective, imagine that you did an online search for the best place to buy a birthday present, and every website advised you to check out Amazon, Walmart, or Target. Sure, those are the most convenient places to shop, but you know that the best birthday gift is probably at the unique gift shop in your town's downtown or in the cool independently owned boutique that you just found online. However, the problem with the production powerhouses isn't just that they are big. It's how they run their businesses.
Big nationwide tax relief companies have very well-established sales funnels. They devote massive budgets to radio, TV, and internet advertising. You've probably heard the commercials where companies promise to "settle your tax debt for pennies on the dollar" — that's the top of these sales funnels. These companies also pay hefty sums for the clicks they receive from review sites. That's why you never see small tax relief firms on the big review sites — it's a pay-to-play situation.
The advertising draws in people with tax problems, but when prospective clients call the tax relief company, they don't talk with a tax expert. Instead, they talk with a sales rep. This is the next stage of the funnel, and to land the customer, the salesperson often uses fairly aggressive tactics.
For example, they may exaggerate about what the IRS is going to do if the person doesn't pay, or they may overstate how much the company can help. A licensed tax pro cannot do this. They are bound by professional ethics.
The salesperson may not even understand how the tax resolution process works, but they do know how to talk you into making a large downpayment. Often, people aren't even sure what they're paying for or how much more they will need to pay.
Once you're hooked, these companies either have an internal tax pro handle the case, or they sell the case to another tax pro for a fraction of what you paid. In both situations, you will most likely never talk to the tax pro handling your case.
So how do you tell if a company is a "production powerhouse"? How do you tell if sales are driven by salespeople or good services? A telltale sign is the "About Us" page on the company's website.
Legitimate tax relief companies feature tax pros on the "about us" page of their website, and they have ample tax pros to handle the cases that they get in. The big tax relief companies typically have one of the following:
- no About Us page and thus no transparency about who's working your case,
- an About Us page with two or three tax pros which is clearly not enough to handle the thousands and thousands of cases these companies work, or
- an About Us page primarily focused on managers and marketing pros.
Unfortunately, when you work with these companies, you will often end up overpaying for services. These companies spend $1,000 to $2,000 in marketing to acquire a new client, and then, they roll those costs into the service fee. According to the Federal Trade Commission, people often end up deeper in debt when they work with a tax relief company, and often, their problems don't get solved.
However, one advantage of working with the production powerhouses is that they are easy to find. Additionally, you know that your money is going to support a multi-million dollar company. Be sure to check various review sites before considering them. Many times, they will push customers to a review site that they closely monitor and push happy clients to, but many times, with some research, you can find those review sites they won’t tell you about. A good place to start is searching the Better Business Bureau. Watch for reviews where the customers call the company a scam and say they didn't receive the promised services.
So, are these big tax relief firms legitimate? Yes, they are real companies. They make money for their owners. But they often don't meet consumer expectations and are not known for good service.
There are medium-sized tax relief firms that strike a balance between sales and professionalism. They have marketing budgets and maybe even in-house marketing teams, but they also have enough tax professionals on staff to work the cases.
The middleweights have visible tax professionals. Their websites show professionals on the About Us page, and they don't outsource work to other tax pros. They handle the cases in-house, and you generally know who's working on your case.
However, when you hire one of these companies, your point of contact may be a salesperson. That isn't necessarily a bad thing as long as you understand what you're getting and how much it costs. With these companies, the sales reps or customer care specialists handle some of the communication with clients to free up tax pro resources. This allows the tax pros to focus on solving the client's tax problems, increasing overall efficiency for the firm.
The Grassroots Experts
At TaxCure, we consider small tax resolution companies to be the grassroots experts. These are the local CPAs, tax attorneys, and enrolled agents who roll up their sleeves and work closely with their clients to resolve their tax problems. They often live in the same communities as their clients, and they have an in-depth understanding of state and local tax issues as well as IRS tax problems.
The grassroots experts are tax professionals who have decided to focus on tax problems. They may also offer tax prep, tax planning, or accounting services, but they also specifically offer tax resolution services. In some cases, these pros have learned on the job. Perhaps they started with tax prep or general accounting. Then, after helping a few people with unpaid taxes or audits, they decided to add resolution services to their offerings.
In other cases, these pros went through additional education and testing to get certified in tax resolution strategies. Two of the most popular certifications are Certified Tax Resolution Specialists and Certified Tax Representation Consultants. Generally, most pros do a mixture of the two — they get hands-on experience, but they also do additional training in tax resolution strategies.
The advantage of working with a small firm is that you get personalized attention for your tax problem. Your tax pro develops an understanding of your unique situation so that they can work out a resolution that solves your problem and works with your budget. These pros don't make promises that they cannot keep. Once they know a bit about your situation, they can often let you know how the case is likely to resolve based on their previous experience, but they won't sell you on something impossible without knowing any details.
This is not true of the big tax relief firms. Even if your case is assigned to a scrupulous tax pro, they often end up trying to bend to the promises made by the sales team. For example, say the sales team told you that you could settle for pennies on the dollar, but once the tax pro starts working your case, they realize that you have too many assets to make that possible. This puts the tax pro in a rough situation where they often end up making poor decisions or setting up the client with the wrong program.
Small firms are often more affordable. They don't have big marketing budgets to cover, and thus, they devote more of your payment to the services you actually need. However, that doesn't mean that a small firm is necessarily cheaper than the big tax resolution companies. Often, you may pay similar prices, but you get a much better level of service from the small companies.
Legitimacy and Transparency: Red Flags and Gold Standards
So, how do you find a legitimate tax resolution company? Should you just look for the smallest company and call it good? No. That's overly simplistic. There are plenty of middleweight companies that can provide you with great services, and even if you want to go with a grassroots expert, you still need to evaluate their experience.
Red Flags of Illegitimate Tax Resolution Companies
To help you out, let's look at some red flags and gold standards of legitimate tax relief companies. First, here are some red flags:
- No visible tax professionals. You need to know who's working on your case. If there are no tax pros on a company's About Us page, choose someone else. Once you select a company, make sure that you understand what they offer.
- Lack of clear pricing structure. You should understand what you're paying for and how much it costs. Legitimate tax relief specialists have clear pricing structures. Illegitimate companies often demand confusing upfront fees or monthly maintenance fees.
- Big promises without knowing about your situation. Experienced tax pros can generally walk you through what to expect once they know a little about your situation. But if someone makes promises about what they can do before they know about your situation, that's a big red flag, particularly if they promise to lower your tax bill.
- Lack of due diligence. A legitimate tax professional looks at every side of the issue. They ask a lot of questions so they can learn as much as possible about your tax situation. Subpar tax pros don't do due diligence. For example, they may not even ask you why you owe the IRS money or how old your tax debt is.
- Aggressive outreach. If a tax relief company calls you, that's either a sign of a scam or a signal that the company is overly focused on marketing to the detriment of its clients. Reputable tax relief pros let the leads come to them, not vice versa.
- Deceptive advertising. Unscrupulous tax relief firms often use deceptive advertising. For example, they send out mailers that look like letters from the IRS. When people call, they think they're contacting the IRS about the tax problem, but they're really talking to a company that's trying to sell them services. Legitimate pros don't do this, and unclear, deceptive advertising is a huge red flag. If a business has to trick its clients into working with them, you definitely don't want to hire them.
Luckily, however, in spite of a few big bad apples, the entire industry is not just doom and gloom. There are many great tax resolution professionals. There are many tax pros who will look closely at your case and help you find the best possible result.
Gold Standard Tax Resolution Companies
How do you spot a legitimate tax resolution company? What's the gold standard of tax resolution firms? Here are a few signs that you're working with a reputable tax professional:
- Client-professional interaction. You know who's working on your case, and you can ask them questions.
- Transparent pricing and processes. You understand what services you're getting and how much they cost.
- Due diligence. The tax pro or their support staff ask questions to learn about your tax situation and your finances. They don't promise outcomes until they understand what's going on.
- Professional certifications. In addition to being a licensed tax pro (CPA, enrolled agent, or tax attorney), the pro has professional certifications from organizations like the American Society of Tax Problem Solvers or the Tax Rep Network.
- Positive reviews. Previous clients have positive things to say about the company. The internet isn't littered with bad reviews.
Once you find a tax relief company that exhibits these gold standards, you need to evaluate their experience. Remember, there are a lot of different tax problems, and you want a professional who has worked on cases similar to yours in the past.
How to Evaluate Different Tax Resolution Firms
Start by making sure that they have experience with the tax agency you're dealing with. All tax resolution specialists have experience with the IRS, but if you're dealing with a state tax issue, you need a pro who has worked cases with that state's Department of Revenue. Every state has different rules and processes, making this critical.
Then, you need to make sure that they have experience with your specific issue. Someone who primarily sets up payment plans and offers in compromise, for example, may not be the best choice if you need help with an audit. Similarly, someone who focuses on resolving personal tax issues may not be well equipped to help you with a payroll tax or other business tax issue.
Pricing Mysteries Unveiled: What Are You Really Paying For?
The average tax resolution case costs about $3,000 to $4,500. However, actual costs vary wildly depending on the services you need. If you're an individual who just needs help setting up a payment plan, you're going to pay a lot less than if you have a company with years of unfiled returns, payroll tax issues, tax liens, and other complicated concerns.
Regardless of how much you pay, you need to understand what you're paying for, and that tends to vary based on the size and structure of the resolution firm you hire.
- The Big Players' Pricing: Large, corporate-owned tax resolution firms have high overheads and big marketing budgets. A big part of your fee goes to cover their costs, not to pay a tax pro to work on solving the problem.
- Midsize Firms' Pricing: Medium-size firms often have a team of tax pros based in one location who offer services nationwide. They focus on handling high volumes of clients with high-level expertise, and their pricing reflects this mix.
- Grassroots Pricing: With a small grassroots firm, you may pay similar (or even higher prices) than you do with the big companies, but you'll get a lot more value. When you hire a small firm, you get a dedicated expert to work your case.
Also, note the differences between hiring a nationwide or local tax pro. In some cases, you can save by going with a local pro — they sometimes charge less because they don't have as much overhead. However, you won't necessarily pay less for a local pro. Often, the prices are the same, but the services are much better when you go local.
Don't just look at the price. Consider the services and value you are getting. To protect yourself, make sure that you ask the right questions.
What to Know Before Signing Up: Key Questions to Ask
So, you've found a few tax relief firms. Perhaps one is a big firm, but you're also calling a few locals. Or maybe after reading this post, you've decided to only contact medium and small firms. In all cases, you need to ensure that you're asking the right questions. Keep these tips in mind:
- What are your professional credentials? To ensure you're working with a legitimate tax resolution firm, make sure the resolution specialist is a licensed tax pro (CPA, EA, or tax attorney). Then, see if they have any tax-resolution-specific credentials. If you're talking with a salesperson, ask about the credentials of the person handling your case.
- Will you be working on my case? Make sure the tax pro who signs the form is also the one who does the legwork. You don't want to sign up with a firm where inexperienced people do most of the work, but then one attorney signs everything without really looking through it.
- What type of experience do you have? Ask about their success with past cases and see if they can provide you with references. You want as much proof of their expertise as possible.
- Can you walk me through the resolution process? Even the most legitimate professional cannot give you an exact timeline. You never know how long the IRS will take to respond to things. But they will be able to walk you through the process. If you feel like the professional is being overly secretive, they may not be a legit pro.
- What if things go wrong? What if the tax resolution pro cannot get you the result you want? What happens then? Are there other resolution options? These questions will help to ensure that you're prepared for anything.
Actionable Tips to Ensure You Choose a Legit Tax Relief Firm
So, how do you choose a legitimate company? Unfortunately, you cannot really trust the review sites, and it's not like you can just call and ask if they provide legit services. Keep these tips in mind:
- Do online research carefully — Be skeptical about the reviews when researching companies online. Keep in mind that most review sites have links to the reviewed company's websites, and the companies pay for those links. The review sites all clearly post that they don't look at every company. In contrast, if you're looking at reviews posted by individual clients, you can put more faith into those, but still keep in mind that big companies put a lot of effort into keeping their online reputations clean. There are many sites that say things like “Best Tax Relief Companies” and have a nice looking page. However, if you look in the fine print at the top of the page, you will see some sort of disclaimer that the companies listed are “affiliate partners” or “earning commission”. This means that it is likely they are ranked based on who is paying the most.
- Talk with family and friends — You may have a family, friend, or colleague who's dealt with a tax problem in the past. Find out who they worked with and talk with them about the process. They may have a great recommendation for you.
- Look for local pros — Local professionals offer several advantages. They have experience with your state or local tax authorities, allowing them to provide better service for these tax problems than the big companies. They're also devoted to hands-on service, and you can meet in person which can be very convenient when you're dealing with a lot of paperwork.
- Schedule a consultation — If you're hiring someone to help you with a big tax problem, you cannot take your choice lightly. This is a significant investment into your finances. Before hiring someone, go through an initial consultation. See how they answer the above questions, but also pay attention to how the call feels. Do you feel like you're talking to a pro? Or has your problem been relegated to a salesperson? This sets the tone for the rest of your experience. The medium and larger companies often have high-paid sales representatives who handle the consultation. While this may not be a bad thing, be aware their job is to sell you the services and maybe not consider the firm's experience with your unique experience. Be sure they can answer the question of, “Who will be working on my case?”.
At TaxCure, our mission is to help people find local tax pros who can help them get lasting resolutions to their tax problems. We are not a tax relief company. Instead, we are a marketplace for tax pros. We have a directory of tax pros that you can search, and then you can narrow down your search based on your tax problem, location, or other specifics. You can also check out consumer reviews and start calling pros for consultations.
Making An Informed Decision
You deserve high-quality help for your tax problem. You deserve transparency in pricing, experienced help, and direct communication. Can the big tax relief firms give you all that? Probably not.
The big tax relief firms are the easiest to find. They come up on Google searches, they dominate the review sites, and your friends/family may have even used these companies. However, you don't have to follow that market trend. You can get high-quality, truly effective services when you work with a medium-sized firm or a local pro.
Ready to get help? Then, use TaxCure to search for a tax professional today. They will help you find a solution that prioritizes your unique needs and concerns.
Recommended Reading and Resources
Ready to learn more about this topic? Want more guidance on finding a legitimate tax relief firm? Then, check out these recent articles from TaxCure and government websites:
- How to Find the Best Tax Relief Company: Local or National?
- Avoid Being Ripped Off by the Worst Tax Relief Companies
- Tax Resolution Services Cost and Price Guide
- FTC Advice About Tax Relief Companies
- FTC Consumer Education About Back Taxes
- How Tax Relief Services Work
- Types of Tax Relief Services
- Taxpayer's Guide to Tax Resolution: From Basics to Best Companies
Ready to start looking for a legit tax resolution firm? Then, you may want to check out these resources:
- TaxCure's Tax Pro Search Feature — Use TaxCure to search for local tax pros who focus on tax resolution services such as helping clients with unpaid taxes, unfiled returns, unwanted collection actions (liens, levies, etc), audits, and other personal/business tax problems.
- American Society of Tax Problem Solvers — If you fill out this online form, ASTPS will contact you with a list of professionals who are certified as Tax Problem Solvers.
- Taxpayer Advocate Service — The TAS is an independent part of the IRS. This organization can help if you are having financial difficulty due to unpaid taxes, you're facing an immediate threat due to unpaid taxes, or you haven't gotten a response from the IRS in the usual time frame. Note that the TAS does not help with routine requests such as setting up payments or applying for an offer in compromise.
- IRS Tax Return Preparer Database — The IRS has a database of local tax professionals and tax preparers, but unfortunately, you cannot narrow down the results to find pros who focus on tax resolution.