How to Settle Tax Debts Legally and Avoid Scams

Taxes are complicated, stressful, and if you don’t pay them on time they can become even more complicated, even more stressful, and incredibly expensive. Debt is never good and no one likes owing money but owing money to the Internal Revenue Service (IRS) is about as bad as it gets.

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In this guide, we’ll see what your options are when you have unpaid taxes, overdue tax returns, and an ever-growing government dent.

Are Tax Relief Companies Legitimate?

There are forms of debt relief for all types of debt. If you have mounting credit card debt, you can work with debt settlement companies to clear your accounts one by one. If you’re struggling with student loan debt or personal loan debt, you can find a solution in a debt consolidation company.

Tax debt relief companies work in a similar way. They are often staffed by experienced tax attorneys who can help you manage your tax returns and clear your tax debts. These companies can be a godsend, as it always helps to have an experienced tax attorney on your side when you’re being threatened with a federal tax lien and charged interest on unpaid taxes.

However, this industry is rife with scams. They tend to charge non-refundable fees and then make promises they can’t deliver upon, knowing that even if they fail, they still keep your money and don’t have to deal with the consequences. The IRS is also less likely to settle than a credit card or loan provider.

Tax debt relief companies still serve a purpose and there are legitimate ones that will get the job done with minimal fuss and cost, but it’s best to remain vigilant and cautious. 

Repayment Options Under the IRS Fresh Start Program

Tax debt relief companies won’t do anything that you can’t do. Tax professionals at companies like Optima Tax Relief simply contact the IRS on your behalf and try to arrange an installment agreement or Offer in Compromise, but you can do this yourself. 

In fact, if you look at reviews for companies like Optima Tax Relief (we’re not picking on them, we’re just using them as an example as they are one of the biggest in this field) then you’ll see many customers wondering what exactly the company does while complaining that they’re taking too long to do it.

Whether you use Optima Tax Relief, one of the other tax relief companies, or you decide to go it alone, your options include:

Payment Plan

A payment plan helps to create a manageable monthly payment. There is no income requirement for a payment plan and if you don’t have the assets or funds needed to clear the debt, then you can qualify.

You can request a short-term installment agreement or a long-term installment agreement. The former will give you 120-days to repay the debt and the latter will extend this as needed.

You will be given two options for the long-term plan: A Direct Debit Installment Agreement, whereby the money is taken from your bank account automatically, or a manual payment installment agreement. Both of these require a payment to set up and this can be done over the phone or online, with the online option being the cheapest one.

Offer in Compromise (OIC)

If your tax debts are so high that repaying them would create significant hardship, the IRS may settle for an offer in compromise. They will look at your income, expenses and your assets to determine if you qualify or not, but they recommend that you take a look at the installment agreement plans before applying for an OIC.

What Happens if you Don’t Pay Taxes?

If you don’t file your taxes you’ll be hit with a penalty, charged as 5% of the amount owed with a minimum of $135. You will also be expected to cover the interest. 

Before any action is taken, a notice will be sent and you need to respond to this in 30 to 60 days. However, even if you don’t have the money to deal with it now, you should still contact them to minimize tax problems further down the line. If you don’t deal with the issue promptly, you may:

  • Lose Your Refund: If you’re due a tax refund then it will be placed on hold until the issue is dealt with. It only makes sense, you’re not paying the money you owe them, so why should they pay the money they owe you?
  • Get a Federal Tax Lien: A lien is a claim on your property and could result in your assets being claimed. They may take your investments, bank account, car, and property. There may be wage garnishments and other issues to face as well. 
  • Force you to Declare Bankruptcy: While bankruptcy can be considered as a last resort option to escape debt, it won’t necessarily absolve you of all that debt and you may still be left with numerous tax problems during and after the bankruptcy process.
  • Forfeit Your Social Security: The IRS may send you a notice declaring that your social security will be seized. They have the right to certain aspects of your income and this is one of the most common.

You should always contact the IRS as soon as you receive a notice. If you’re concerned with how the process is going or aren’t getting the answers you seek by dealing with them directly, you can think about tax relief companies and tax attorneys.

How to Avoid Tax Debt Relief Scams

As discussed above, some tax relief companies will make big promises and then deliver very little. There are also companies that have no intention of helping you and will just take your money and not send anything to the IRS.

To stay safe when dealing with tax relief companies, be wary of companies that:

  • Guarantee to remove all or most of your tax debt.
  • Promise to remove penalties and interest.
  • Request your business via unsolicited emails or letters.
  • Don’t look into your financial history and affordability (something that the IRS will always do).

Conclusion: Tax Debt Relief

Tax debt resolution services exist to make your life easier, allowing you to pay some money to have tax professionals work on your behalf. It might be something you can do yourself, but that doesn’t make it a scam. It’s the same with completing a tax return, you can do this yourself or you can pay an accountant to do it for you, that doesn’t mean they’re scamming you—they’re just shouldering a burden that you would rather do without.

Tax debt relief companies are legitimate, for the most part. As can be said for many services on the market today, some are scams and others will overcharge and underdeliver, but if you do your research, read reviews, and check ratings, you can find a team of tax professionals that have the credentials and experience needed to help you.