Tax scam's deal really is too good to be true |
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"The OIC isn't a panacea, and a lot of people simply buy into the ads and hope for the best," says Matthew Campione,
a former lawyer for the IRS and now a tax partner with Smolen Plevy in Vienna, Va.
According to Campione, the OIC process actually hems in many taxpayers because it prevents them from disputing the
underlying liability -- a tactic that can lead to dramatic reductions in some cases -- but that may require taking the case to federal
court. But Campione says if the taxpayers are certain that the amount owed is correct and they meet the IRS requirements for an OIC,
they should be able to prepare their offers alone or with the help of a tax preparer.
For Campione and others who make their living as tax professionals, there is surprisingly little they can do in the
OIC process, beyond helping a taxpayer to prepare their financial statement and making a few phone calls. That means firms specializing
almost exclusively in settlements should raise immediate red flags, says Linfield, who cautions that there is "no secret recipe here."
So what can you do?
Each year, the IRS accepts about 3 million installment agreements. Unlike an offer in compromise, installment agreements aren't about forgiving a taxpayer's
debt, but they do allow the taxpayer to hash out a realistic payment plan with the government.
According to many practitioners, taxpayers should try to reach a settlement agreement on their own, although they may
want to hire an accountant or attorney if the amount is relatively high or if they are unable to make progress with the IRS.
While the financial analysis for determining the terms of an installment agreement are the same as an OIC, the taxpayer
has one key advantage -- leverage.
"The IRS wants to encourage settlement," says Pagano. "Although the financial standards are the same (as with an OIC),
the taxpayer is in a better position to negotiate an installment agreement."
Taxpayers who opt to pay their debt in installments may be able to convince the IRS to let them maintain a slightly more
expensive lifestyle than what the government typically allows. Those taxpayers who need help making their case should avail themselves of
the IRS ombudsman and the National Taxpayer Advocate, two independent offices set up within the government to help consumers navigate
IRS bureaucracy.
But before consumers sign on the dotted line of an installment agreement, they should be aware of the consequences of
default. A default on just one monthly payment could allow the IRS to demand repayment in full, warns Pagano.
What if you've already used a tax debt resolution firm?
As early as 2004, the IRS issued a consumer alert warning that "unscrupulous promoters" were preying on consumers with tax troubles by
advertising unrealistic services that only ended up costing their customers time and money, delivering nothing in the way of relief.
According to Linfield, the problem is widespread and growing, with scam artists focusing largely on the middle class.
"The tax settlement industry is just another shade of the debt settlement industry," Linfield says. "That's a conclusion
regulators are quickly coming to, and it won't be long before a lot of these firms are swept into the regulatory regimes of the states."
In the meantime, the industry hasn't escaped the attention of law enforcement officials. Several months ago, the attorneys
general of 18 states settled a dispute with JK Harris & Co., which bills itself as the largest tax resolution company. The agreement
requires JK Harris, which did not admit any wrongdoing, to pay $1.5 million in restitution and change its advertising practices.
While most consumers won't get their money back from a tax specialist who failed to deliver, Linfield urges them to keep
written records of their correspondences with the companies. She also suggests contacting your state regulator, attorney general or the FTC
if you think you've been the victim of a scam.
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