Fraud and Ethics in Tax Relief Companies

I have worked with many groups and people in the tax world, including the Association of Government Accountants, California CPA Education Foundation (Redwood City, California and San Francisco, California), California Society of CPAs, Canadian Bookkeepers Association, Minnesota Society of CPAs, Montana Society of CPAs, North Carolina Society of CPAs, Deloitte, and Lutz and Co.

Recently, I was speaking at a CPA event on fraud and ethics.  After my presentation, I popped in to see another speaker who really got my attention.   His focus was on fraud and ethics in tax relief companies. He opened with the promise that he would share a secret on how you can stop paying taxes to the IRS then later pay the IRS “pennies on the dollar,” via special tax relief programs.  This, however, was just to get the audience’s attention.  He very quickly dashed our dreams and put to bed the wishful promise that we can stop paying taxes and then just cut a deal with the IRS.

Does the IRS Really Forgive Taxes?

While there is actually a way to cut a deal with the IRS, via the “Offer in Compromise,” he assured everyone that it’s really just for those at the Last Chance Saloon, who owe a ton of money to the IRS compared with their ability to pay. He said the most common scenario is a business that accrues a lot of tax then goes out of business.  The Offer in Compromise is geared towards the former business owner who works a normal job, or maybe is retired or on disability; he has no chance to ever pay back the taxes. That’s when the IRS might entertain a settlement.

How Many Tax Relief Companies Operate

He then went on to talk about how so many of the tax relief companies, behind these ubiquitous TV commercials, operate. First, they promise great savings, new government programs, tax moratoriums, and other fantastic ideas that sound legit (and complicated). They get you excited, and you call them.

Next, a fast talking sales guy, a tax relief expert, will tell you all about the nasty things the IRS will do; take all your money, your car, your home and then your first born.  He’ll tell you that the good news is — ‘You’re talking to the IRS punishment experts!’  Of course they know how to strong-arm the IRS for you, and you’ll only have to pay something like 5-10% of the tax.  They’ll tell you their real value: they have insider knowledge and proprietary software, secret handshakes and knowledge of obscure laws that no one else even knows about.  All it will cost you is several thousand dollars. Oh, and they’ll need money that today before the IRS throws you in prison — which could be any minute.

What I found so interesting about this, as it relates to my area of expertise — fraud and ethics — is that in one sense the fast talking sales guy pitching blue sky B.S. is technically doing something less fraudulent, or at least less professionally hazardous. What if a CPA or other licensed tax professional gave you the same fantastic, sensational sales pitch?  It would be really really bad.

Greater Risk for Fraudulent CPAs, Lawyers and Enrolled Agents

Anyone licensed by the state as a CPA, an attorney with the state bar, or an Enrolled Agent licensed by the US Treasury, cannot say made-up stuff, fraudulent claims.  They have legal and ethical duties to tell the truth and give good faith advice or they will lose their license and could face other legal and financial consequences.  But fast talking Freddy has a lot less to loose.  He may not even know how to balance his check book.  Tax relief companies don’t have to be compared to the debt collection world.  Which can be thought of as being notorious for street thugs on phones scaring people into paying bills that they may not legally owe, or may have already paid.

(If you want to learn more about the seedy world of debt collection world, I recommend this NPR Planet Money podcast.)

The speaker went on to say that in his opinion, many of the so-called tax relief firms (the ones who make the grandiose promises TV or radio commercials) employs a lot of people that he wouldn’t trust to take out the garbage, let alone interface with peoples tax and financial information, social security numbers, bank records, and such. These are the firms doing the turn-and-burn, raking in fees for a while but eventually go out of business or running for the hills when the risk vs. reward is too great.

His examples included JK Harris, Roni Lynn Deutch, and Tax Masters as examples of firms that advertised on a national scale. At their peak, they employed hundreds of people selling the hope of the Offers in Compromises to people that clearly didn’t qualify.  Therefore, they couldn’t deliver on their claim to help with their tax debt. He actually referred to these types of companies as offer-mills promising Offers to unqualified but hopeful people.

Tax Relief Company Research

The fraud hunter in me kicked in and I spent some time looking at the tax relief firms we see on TV and here on the radio. The more I looked, I found all the warning signs.  Call me slippery or less-than-honest, but I even called several tax relief companies as someone who owed about $100,000 from a business I had years ago, and didn’t want to pay it.  Almost all of them promised me the good stuff.  But when I asked about their license, they’d actually say that they had someone in the office who is licensed, and that the individual didn’t need to be licensed.  Some of them even said that they knew the law better than most attorneys.  Right, and I know astrophysics better than Stephan Hawking.

Hope for Legitimate, Ethical Tax Relief Companies

Just before I gave up hope that there were good guys in the IRS tax relief world I stumbled across Best Tax Relief Company, a group that does tax relief company reviews and ratings. Several of the big companies that we are all familiar with from commercials are reviewed, and the reviews reflected my experience from calling.  When I read the Larson Tax Relief review, what popped out is they were noted as having a high level of licensed staff, more than the norm.

Just to make sure they were on the up-and-up, I picked up the phone and called the Larson company.  I spoke to a guy who announced himself as an Enrolled Agent.  Skeptical, I googled his name while talking to him and discovered that, indeed, he was legit.  So far so good.

Unlike the other companies I called, alleging I owed the IRS about $100,000 from a business I had years ago, and didn’t want to pay it, the licensed Larson Tax Relief company employee  waved off the notion after a few questions.  He effectively said that I made too much money.  He said that I had assets I could sell and that the IRS would know this and want me to sell it. He said that he’d likely be able to help me get some extra time to pay my tax debt and make sure they didn’t levy or garnish my income, but the IRS wasn’t going to make me any deals.

Final Thoughts on Ethical Tax Relief Companies

Aside from the speaker I heard at the CPA conference, I independently confirmed that there are a lot of bad actors in the tax relief world.  At the same time there are thousands if not millions of people who owe taxes and need help. Apparently individual tax debt is at an all time high, so what is a person, who is truly in need of some kind of tax relief assistance, to do? How do you know who is a good guy and who is an Offer Mill?

My advice: don’t hire just anyone you see on TV. There may be a good guy in that pool but why take the risk? When you think about it, do you want to hire a company that spends a lot of their money on expensive advertising or spends its money on more expensive but highly trained staff?

When you look at a tax company’s website or the marketing materials they send you, see if they are selling you the hope of slashing you tax liability.  If they are — be ware.  You may be able to get some penalties removed, and maybe, just maybe there could be some savings, but probably not in the range of 90%, a number that seems quite commonly advertised. Also, if you talk to someone at one of these companies and they aren’t licensed as a CPA, Enrolled Agent, or an attorney, I’d be stingy about your trust.

I’m glad I had enough time on my hands, but you might not.  If I ever really do have a need, I’m calling back the last guy I talked to.