Worst Tax Relief Companies: Are Tax Relief Companies Legit?
The worst tax relief companies are the companies that really are sales and marketing companies at the core and operate tax resolution as a factory. These companies staff licensed tax professionals. While some are great professionals, the companies assign them a very high caseload, and the cases they are assigned are not based on their experience. When first interacting with these companies, you will talk to a salesperson. This person gets paid to “close the deal” and use clever sales tactics. These companies oversell and over-charge for their services. They often don't produce the results they promise, and in many cases, they don't even send the right paperwork to the IRS. Then, they refuse to issue refunds, leaving people deeper in tax debt.
Why does this happen? How do these companies stay in business? What should consumers do if they need help with tax issues?
The answers are fairly straightforward. These companies stay in business because they're very good at sales and marketing. Like other services, many people don’t find pros by word of mouth in the tax relief industry. Many people are embarrassed about their problems and reach out to companies they’ve heard of on the radio or pay-to-play review sites. Wouldn’t you rather work with an experienced professional based on experience with your issue rather than the large branding efforts & marketing spend?
The rest of this guide looks at the history of the tax resolution industry. It explains how to avoid getting cheated and what to do if you get ripped off by a tax resolution firm. Then, it explains how to get high-quality, trustworthy help with tax debt by using TaxCure to search for local tax professionals.
Are Tax Relief Companies Legit?
The term “Tax Relief Company” is synonymous with large firms that are just sales and marketing companies. However, the services they provide are a necessary service. The right question to ask is, are tax relief services legitimate? The answer to that is yes. Having trouble with the various tax agencies is difficult, and it is beneficial to hire an experienced tax professional to navigate the tax laws on your behalf. Realize tax pros work cases, not companies.
Searching the internet for things like “Tax Relief Company” or “Best Tax Relief Company” will yield you mainly the large company brands. People search for this because of their branding and their creation of the tax relief industry. Before this was considered an industry, it was mainly tax firms owned by enrolled agents, CPAs, and tax attorneys doing the work. Sales and marketing companies realized these services were a prime target for growing large national companies. They could use trained salespeople & clever marketing tactics to sell services to people that were nervous about their financial situation and use clever names for filings the IRS has available. By forming a tax relief company and having salespeople sell the services, they are not bound by the same ethical standards as licensed tax professionals.
Worst Tax Relief Businesses in History
According to the Federal Trade Commission (FTC), the worst tax relief professionals charge their clients thousands of dollars in upfront fees, and they don't just provide subpar services. Sometimes, they have even made unauthorized charges or debits from bank accounts. Some of these companies were so bad and had so many consumer complaints that the Department of Justice (DOJ) shut them down and brought criminal charges against the owners.
Four Worst Tax Relief Firms in History
Here are three of the worst tax relief businesses in US history:
- JK Harris: Previously the largest tax relief company in the United States, JK Harris charged exorbitant fees, and during free consultations, its reps lied to clients about which tax programs they could qualify for. Over 20 state attorney generals brought lawsuits against this company.
- American Tax Relief: American Tax Relief charged clients for work that the company didn't do, and in some cases, it charged up to $25,000 for services offered but not provided.
- Tax Masters: A publically traded company in 2010, Tax Masters cheated clients with false advertising and unethical billing processes. The Texas Attorney General sued Tax Masters on behalf of over 1,000 taxpayers who'd been cheated by the company.
Unfortunately, all of this happened relatively recently. JK Harris, for example, opened in 1997 and was liquidated in a Chapter 7 bankruptcy in 2012. The FTC issued a temporary restraining order and asset freeze against American Tax Relief in 2010, and in 2014, the FTC sent over $16 million in refunds to people who were hurt by this company's tax relief scams.
What Happened to the Worst Tax Debt Companies?
In many cases, the people who owned these companies simply opened other tax relief companies under different names. Many of their employees also opened tax debt resolution companies, using the practices they learned while working for these unethical firms.
For instance, when JK Harris shut down, the company negated all of its employees' non-compete agreements. This opened the door for these people to form their own tax resolution firms and even follow up with former clients of JK Harris.
Are Tax Relief Companies Legit?
This can be a shady industry. The worst tax relief companies don't provide great help to taxpayers. Instead, they oversell promises that they can't keep, and historically, they have taken money from clients without fixing their tax issues. Additionally, most tax relief companies only work with you if you meet their minimum tax debt requirements. The minimum debt required varies, but it's often at least $10,000.
JK Harris actually revolutionized the tax debt resolution industry, and since this company was formed in the late 1990s, many other companies have followed its model. JK Harris was an accountant, and he also wrote books about business sales and expansion including "Flashpoint: Seven Core Strategies for Rapid-Fire Business Growth" and "Sales Flashpoint: Fifteen Strategies for Rapid-Fire Sales Growth". These books detail the strategies Harris used to grow his company into the country's largest tax debt resolution firm.
It all boils down to sales. The company started with a six-month trial in six cities. Then, over the next three years, it opened 450 sales offices and eight regional centers. Over the following two years, Harris consolidated the regional centers into one corporate office in South Carolina, and he bought a call center in Florida to handle appointment setting and sales.
This is the model that big tax resolution firms still follow today. As you can see above, Harris didn't fill a bunch of offices with Certified Public Accountants or tax lawyers. Instead, everything was based on sales. The company convinces someone to pay for tax resolution services and then passes off the case to a tax professional to close the case. What was often sold was not an obtainable solution, which puts even the most legitimate tax professionals in a bad situation where they will look bad no matter what work they perform.
How the Tax Relief Industry Advertises
Tax debt relief companies have existed as long as there have been taxes. But the tax relief industry is relatively new. Back in the late 1990s and early 2000s when JK Harris opened, people typically found tax relief services by word-of-mouth.
For instance, if Sally owed a tax debt to the IRS, she would talk to her friends or co-workers, and eventually, someone would refer her to a CPA, tax lawyer, or enrolled agent who had helped them with a tax issue in the past.
JK Harris changed all of this. The company launched huge marketing campaigns to reach people from all over the country. In contrast, a CPA, tax lawyer, or enrolled agent who offered the same types of services didn't have this loudspeaker.
Do Tax Debt Relief Companies Settle Taxes for Pennies on the Dollar?
If you watch an old TV commercial for JK Harris, you'll hear the refrain that tax relief companies still use today — "we'll settle your IRS debt for pennies on the dollar." These companies leverage this idea to get customers, but in most cases, it's a lie.
The IRS is willing to settle some tax debt for less than you owe. This happens through the Offer in Compromise and Partial Payment Installment Agreement. Both of these programs let you settle your tax bill for less than you owe, but you can only qualify if you truly can't afford to pay any more than the settlement amount.
Deceptive tax debt relief companies make it look like anyone can qualify to settle their tax debt, but that is not true. If you call a company, and they tell you that you can settle for pennies on the dollar before they know anything about your tax debt or financial situation, just hang up.
You're probably talking to a salesperson, and they don't know what they're talking about. In fact, the FTC says that it's a big red flag if a company tells you that you can qualify for a tax resolution program without first learning more about your situation.
Are There Good Tax Relief Companies?
When you look at lists of the best tax relief companies, you'll see the same names over and over again. The fact is, they are the ones paying the most to obtain those top positions. If you search something like “best tax relief companies” in Google, you will see four advertisements above the normal search results. If you click on one of those ads, the advertiser is paying $20+ for that click. Many of these top results are review sites, which list the same companies as the next advertising link, or it is a national company paying top dollar for that click. Then you go on to the “natural listings,” which are the listings that are not paid ads. You will see trusted websites like Investopedia, money.com, sfgate.com, and others. When you look at their listings, you will see the same companies once again. When you look closely at the page, you will see some advertising disclosure stating they “may” receive a referral fee or blatantly stating that their ranking is based on advertiser payments. They are paying hefty fees to be seen here, and those costs get passed directly onto the taxpayers who hire them for the services.
The fact is, there is no #1 tax relief company in the country. There is a #1 tax relief company in sales, and generally, the companies you see over and over are the top sellers of tax relief services in the country. There is no #1 company because each taxpayer has a unique situation, and there are many tax agencies other than the IRS, and there is not one company that can be the best at handling all situations. However, it comes down to the individual tax professional that works the case.
Think of these companies like Walmart -- they're big and easy to find. But they're not really associated with quality, and unlike Walmart, they're not associated with low prices either.
The best option for tax debt relief is a local tax professional.
Differences Between Local Pros and Tax Relief Companies
There are several differences between local tax pros and tax relief companies. Take a look at this breakdown to get an overview of the differences.
|Tax Relief Firms||Local Tax Pros|
|Services||Tax relief firms are notorious for promising clients that they qualify for tax relief programs when they really don't.||Local tax pros work with clients to help them set up payment plans, apply for offers in compromise, request penalty abatement, appeal tax issues, and more. They customize their services to meet their clients' needs.|
|Marketing||Big tax relief companies spend millions on advertising every year. They want to reach people from all over the country.||Local tax pros spend variable amounts of money on advertising. Typically, they have modest advertising budgets focused on local media.|
|Cost||Tax relief firms spend an average of $1,000 to $2,000 in marketing to bring in each new client, and they roll these costs into their client fees.||Local tax pros charge variable fees based on the type of tax help that their clients need. They may charge flat fees or hourly rates.|
|Sales commissions||Many tax relief companies pay their sales reps a commission for selling services to clients. The commission is typically a percentage of the client's fees. This drives up prices for customers.||Most local tax professionals do not have sales staff. They either answer the phone themselves or have a trusted employee handle client onboarding. They are extremely unlikely to pay commissions to salespeople.|
|Experience||When you contact a tax resolution firm, you typically talk with a sales rep. They are not licensed. They have memorized a script about tax relief services.||When you reach out to a local tax pro, you get to work with someone who has extensive training in tax resolution techniques. Enrolled agents, tax lawyers, and CPAs pass grueling tests so they can represent taxpayers. They also must complete continuing education on a regular basis to keep their licenses active.|
|State tax debt||Most tax resolution firms are licensed to practice in every state, but that doesn't mean they have experience with the tax code in your state. State tax laws, collection procedures, and state tax debt resolution options vary drastically.||Local tax professionals work with your state revenue department on a regular basis. They understand the rules and processes and have dedicated experience in your state.|
|Minimum debt||The big tax resolution firms often have a minimum debt requirement for new clients. Generally, because of their high overhead costs, they cannot make money unless they can charge a significant amount.||Local tax pros don't require you to have a minimum debt. As long as their client load allows, they will work with anyone who needs help.|
|Ethics||Tax resolution sales reps are not bound by any professional, ethical requirements.||Tax lawyers, CPAs, and enrolled agents must abide by the ethical standards in IRS Circular 230.|
What Do Tax Relief Companies Charge?
Tax relief fees vary based on the type of tax relief and the complexity of your case. However, it's critical to note that you don't just pay for tax relief services with the big firms. Instead, your fee includes a lot of overhead. In particular, your fee covers the sales and marketing costs the company incurred to bring you through the door.
How Much Do Local Tax Pros Charge for Tax Debt Relief?
Local tax pros also charge fees based on the type of tax relief and the complexity of your case. For instance, if you owe hundreds of thousands in business taxes or if you have years of unfiled corporate returns, you should expect to pay more than someone who owes $10,000 in personal income tax and just wants help applying for a monthly payment plan.
Cost of Local Tax Pro Vs. Tax Relief Firm
In almost every situation, you will pay less for a local tax pro than a tax relief company. This is because local tax pros don't have as much overhead. They're not paying for massive country-wide advertising. They're not staffing big call centers or shelling out commissions to sales reps. Their model is flexible and allows them to operate more efficiently. Large tax relief firms don’t achieve economies of scale like other large businesses, which translates into lower consumer prices.
Do Tax Relief Companies Really Work?
In some cases, tax relief companies help people. They help taxpayers sign up for payment plans or apply for relief programs. But generally, they overcharge and provide subpar services.
There are licensed tax professionals who work for these companies, but they handle an extremely high volume of cases. This means that they generally provide sloppy, one-size-fits-all services. They also have inexperienced pros who do the hands-on stuff.
In contrast, when you work with a local tax pro, they maintain smaller caseloads. They may have a support staff, but the tax pro is the one who files the forms and deals with the IRS on your behalf. They customize their services to meet your unique needs.
How to Find the Best Tax Relief Companies,
Unfortunately, the lists of best tax relief companies typically include the same companies. These firms aren't on all of the best tax relief companies lists because they're great at helping people with tax debt. Instead, they're on these lists because they pay big marketing fees to the list publishers.
That's why all of these lists cover the same old suspects. If you really want to find the best tax relief companies, you have to gravitate away from these sites and look for help from a local tax pro.
What to Do If You Get Ripped Off by a Tax Relief Company
If you have received poor service from a tax debt relief company, you can report them to the Internal Revenue Service or the Federal Trade Commission.
To reach the IRS, file Form 14157, Complaint: Tax Return Preparer. The IRS will review the info you reported, and if necessary, the agency will forward your complaints to the IRS Office of Professional Responsibility for further investigation.
If you want to report the company to the FTC, you can do that online or by calling 1-877-FTC-HELP. You can also make a complaint to a state-based organization. For instance, in California, you can submit complaints to the California Tax Education Council.
When to Make Complaints About Bad Tax Debt Relief Companies
The FTC advises you to make a complaint if any of the following happens: 1) the tax debt relief firm promised that it would be able to get you tax debt forgiveness without looking at your situation. 2) the company misrepresented how long it would take to process your applications. 3) the relief firm didn't include all of your asset details on forms to the IRS.
The first two issues are poor customer service, but the third issue is tax fraud. When you apply to have your tax debt forgiven or reduced, you need to give the IRS details about your financial situation. The IRS uses the information on your application to determine if you qualify. Basically, your offer has to represent the most you can afford to pay, or the IRS will not give you any debt forgiveness.
This means that it's critical to report all of your information accurately. If you don't include all of your assets, you are misrepresenting the situation to the IRS, and this is tax fraud.
Can All Tax Pros Provide Help With Tax Debt?
No, not all tax pros can help with tax debts. In some cases, they can't help simply because they focus on a different aspect of tax services. In other cases, they may not have the right experience to provide the help you need. In still other cases, they might not have the right credentials to help you.
Keep in mind that there are many different types of tax pros. Sometimes, people pay a professional tax preparer or an un-certified accountant to do their tax returns. These are not licensed roles. You can become an accountant just by getting an accounting degree. You can be a tax preparer with even less experience.
Only Certified Public Accountants (CPAs), tax attorneys, and enrolled agents (EA) can represent you in front of the IRS. These professionals had to take tests (the CPA exam, the bar exam, and the EA exam, respectively) to get their licenses. They also had to complete continuing ed to keep their licenses active.
Get Help With Back Taxes and Tax Problems
Dealing with tax debt can be very overwhelming. Even if you have a financial background and want to spend a lot of time reviewing IRS educational resources, you probably should seek professional assistance. This is especially important for small business owners who have to deal with very complicated tax scenarios.
To get help with back taxes, avoid the big firms. Instead, look for a local professional who can help you deal with your tax obligation and negotiate with the IRS. When reviewing options, look at their rating with the Better Business Bureau. Then, call for a free consultation to get a sense of how they can help you.
Keep in mind that only the IRS can accept or reject you. When you talk with a tax pro, they can give you a good idea of whether or not you'll qualify for certain tax debt resolution programs, but they don't make the final decision.
How to Find Tax Debt Help and Tax Relief Options With TaxCure
We designed TaxCure to help people find the best professional to help with their unique tax problems. We know it is not a one size fits all market like these larger companies want you to believe. Using TaxCure, you can search for a local tax pro who has experience with back taxes and tax relief options. Using our search, you can find professionals with experience with your particular problem and tax agencies. Don't get subpar services from big companies. Instead, find a local tax professional that has the best experience with your unique situation.