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If you owe unpaid back taxes to the IRS, tax resolution firms can help you negotiate a settlement or a payment plan that makes your IRS tax debt more affordable. These firms are typically run by tax attorneys or certified public accountants (CPAs) who have the knowledge, experience, and authority to work with federal and state tax authorities on your behalf.
Tax resolution firms work with individuals and businesses to resolve complicated tax issues. They provide a range of services which typically include:
The IRS offers several free programs to assist taxpayers who are struggling with unpaid tax debt. Although you are certainly able to work with the IRS independently through these programs, tax resolution firms have unmatched experience in navigating these often complex systems and helping you provide the necessary information to qualify.
One such program is the IRS Fresh Start Initiative, an installment program that allows you to pay back your tax debt over time instead of all at once. Through the Fresh Start Initiative, you can also negotiate an offer in compromise. This requires you to prove that you cannot pay the full amount of your tax debt and that the requested settlement amount is the highest amount that could successfully be recovered from you by a collection agency.
You can also work with the IRS through the Taxpayer Advocate Service, which is free for all U.S. taxpayers and provides you with representation on IRS matters. They strive to uphold your rights with the IRS, including the rights to information about your case, to have representation, and to challenge and appeal your case.
Unfortunately, many tax relief firms prey on those who feel the pressure of the substantial debt they owe. You have likely received mail from companies offering to settle your tax debt for a fraction of what you owe, but be aware that many of these businesses are not legitimate. Do not give money or personal information to any tax relief firm until you’ve fully vetted their qualifications, including their status with the Better Business Bureau.
Call the company to learn more about their credentials. Find out what their services entail, how many years of tax relief experience they have, the training and certifications their representatives have, and how many years they have been in business. In general, the longer a company has been in business, the more likely that it is a reputable firm. You should also make sure that the representatives have the credentials required to negotiate with the IRS on your behalf. This includes those who are tax attorneys, CPAs, and/or enrolled agents with the IRS.
The answers to these questions can help you determine whether a specific firm is a right fit to help you negotiate a settlement with the IRS.
If a tax resolution firm you’re interviewing avoids answering questions or provides only vague information, consider that a red flag. Avoid working with a firm that requires you to pay a steep retainer before working on your case.
Many tax resolution firms employ both CPAs and tax attorneys. While both these professionals have tax law expertise and the legal authority to represent you in official IRS negotiations and proceedings, they do have different specialty areas.
Attorneys who specialize in tax law keep up with the extensive, ever-changing tax code and will be able to apply the appropriate laws to your tax situation. Tax attorneys assist with matters including, but not limited to, estate planning, trusts, business and corporate taxes, and tax disputes.
However, an effective tax attorney not only needs intimate knowledge of the law but also the ability to negotiate on your behalf, both before the IRS and in the court system if necessary. If you hire a tax attorney to help resolve issues with unpaid taxes, they will analyze your complete financial picture and other material facts to build a case that supports your best interests.
Though tax attorneys have extensive tax law knowledge, they typically do not prepare tax returns or provide advice about deductions, exemptions, credits, and tax planning. You may want to hire a tax attorney if:
Your attorney cannot be forced to testify against you in court or provide details to your case to anyone.
A CPA specializes in helping individuals and business owners plan for, maintain, and prepare their finances and taxes. This includes preparing annual tax returns and submitting them to the IRS, ensuring that you comply with the tax code, amending tax returns that have errors, and helping you file overdue or prior year returns.
Like tax attorneys, CPAs can also represent you during IRS negotiations, audits, trials, and hearings.
When a CPA has five or more years of experience working with the IRS and has developed a thorough knowledge of and expertise in application of tax code, he or she can become an enrolled agent (EA) by passing a certification test. An EA specializes in assisting with complicated legal matters associated with the tax code. Although an EA can also represent you with the IRS, they primarily identify required forms that you may not have submitted with prior year returns. Even if these forms were not filed in error, they may change the amount of federal or state taxes you owe.
Many individuals avoid filing their taxes because they suspect they will owe more than they can afford to pay. Others file their returns on schedule but are unable to pay the amount due. While a staggering tax bill can be scary, ignoring the problem won’t make it go away — it will actually compound it with additional interest, penalties, and fees. In addition to working with a tax resolution firm, you have options if you owe state or federal back taxes:
Above all, if you have IRStax debt, don’t panic. The agency is typically willing to work with you and wants you to pay whatever amount you are able to afford. Hiring a tax resolution firm or tax attorney to negotiate with the IRS on your behalf can help alleviate your anxiety and fear about this process. Being proactive about your IRS tax debt keeps your options for payment open and prevents expensive compounded taxes, fees, and interest that can multiply the amount you owe.