If you're a late-night cable TV viewer like me, you've seen the ads: "Owe the IRS? No worries! We can settle your tax debt for pennies on the dollar!"
Such tax resolution claims should raise suspicions for two reasons.
First, if this is such a good deal, why are they advertising during 2 a.m. Matlock reruns? Couldn't they get more business if they ran the commercials closer to prime time?
Second, and more importantly, this probably is a classic case of if it sounds too good to be true, it is.
That's what the California attorney general says about one of the companies offering to help taxpayers settle IRS debts for much less than they owe. Roni Deutch, the Internet's self-described Tax Lady, has been hit with a $34 million lawsuit that charges she exaggerates her abilities to resolve taxpayer IRS bills in violation of California's Unfair Competition Law and False Advertising Law.
The lawsuit alleges that "tens of thousands of consumers" in California, where Deutch is a practicing attorney, and around the United States "pay thousands of dollars in advance fees" in response to claims that they will have their tax bills essentially erased.
"Once retained, however, Defendants do little more than send their clients a series of form letters and redundant requests for documents," states the lawsuit. "Very few of Defendants' clients ever successfully resolve their IRS tax debt. Defendants then deny refund requests and keep their clients' unearned fees by fraudulently billing them for time Defendants did not spend on client matters."
In response to the lawsuit, Deutch issued a statement saying, she looks "forward to a full and fair airing of this matter in a court of law where my law firm and I will aggressively and vigorously defend the claims against us, and I am absolutely confident we will prevail."
I'm not here to render an opinion on the lawsuit again Deutch. As she notes, that will come in a California court or, more likely, in the form of a pretrial settlement.
But it does underscore the importance of knowing exactly what you will get when you hire tax help.
To avoid being in a situation where you feel like you're not being properly represented, you need to thoroughly check out your tax professional before any deal is signed.
If you do owe the IRS more than you can pay, you also need to be aware of your realistic tax payment alternatives.
Yes, the agency will, in some cases, accept less than your full tax bill through a process known as offer in compromise. But such arrangements are not automatic; the IRS demands documentation and advance fees.
And, despite what you might hear, the tax amount you end up paying is not likely to be anywhere near pennies on the dollar.
That doesn't mean it's not worth a try if you really can't pay. Or you might find another way to pay your tax bill, such as via an installment agreement with the IRS.
Whatever tax bill resolution course you choose, just make sure you hire a qualified tax pro and that you have no illusions about what your eventual tax responsibility will be.