Consumer Alerts

    Don’t Double-Down on Tax Debt


    February 25, 2015

    In many cases, tax-relief companies know when they contact consumers who owe taxes, that these consumers are desperate to find ways to settle their tax debt with the Internal Revenue Service (IRS) or the State of Arkansas.

    Tax-relief companies often claim they can reduce or even eliminate an individual’s tax debts and stop the collection of back taxes by applying for legitimate IRS hardship programs. The tax-relief companies don’t usually settle the tax debt and, in many cases, don’t even send the necessary paperwork to the IRS.

    Arkansas Attorney General Leslie Rutledge issued today’s consumer alert to caution Arkansans to avoid falling victim to promises that they are “eligible” for tax relief, and to inform consumers of tax relief programs offered by the IRS.

    “Don’t panic. That’s the most important thing consumers should remember if they have tax debt,” said Attorney General Rutledge. “The IRS has tax-relief programs to help Arkansans who owe back taxes or are behind on their payments, but consumers have to communicate with the IRS, otherwise, penalties and interest will accrue.”

    Consumers should view paying taxes just like paying other bills. It is often better to negotiate a payment plan with the creditor than to pay someone else to finalize those details. The same is true when back taxes are owed to the IRS or the State.

    Consumers who are having trouble meeting their tax obligation should avoid the following:

    • Companies that make promises that consumers are “eligible” or “qualified” for a tax-relief program. Only the IRS can make that determination.
    • Programs that won’t allow for in-person meetings before discussing payment.
    • Any program that asks for upfront fees or advance fees.
    • Any program promising results that seem too good to be true. As with paying any debts, programs that offer massive reductions from a total bill, should raise a red flag.

    The IRS offers the following tax-relief programs to help consumers who owe taxes:

    • An Installment Agreement is generally available to people who can’t pay their tax debt in full at one time. The program allows taxpayers to make smaller monthly payments until the entire debt is satisfied.
    • An Offer in Compromise (OIC) lets taxpayers permanently settle their tax debt for less than the amount they owe. The OIC is an important tool to help taxpayers in limited circumstances. Taxpayers are eligible only after other payment options have been exhausted and their ability to pay has been reviewed by the IRS.
    • In very limited circumstances, the IRS may offer penalty abatement to consumers who haven’t paid their taxes because of an unusual hardship. If the taxpayer meets very narrow criteria, the IRS may agree to forgive the penalties. Interest abatement is even more limited and is rarely provided.

    According to the IRS, Arkansans can apply for an Installment Agreement, OIC, or penalty interest abatement without the help of a third party. If third-party assistance is preferred in negotiating with the IRS, only certain tax professionals — Enrolled Agents (federally-authorized tax practitioners who can represent taxpayers before all administrative levels of the IRS), Certified Public Accountants (CPAs), and attorneys — have the authority to represent taxpayers. Their services should involve a face-to-face meeting where they explain all options and their fee structure.

    The Taxpayer Advocate Service is an independent organization within the IRS that provides free help to people who are experiencing financial difficulties or who need help resolving a problem with the IRS. Call (877) 777-4778 or visit www.irs.gov/advocate.

    For more information about this and other consumer issues, visit the Attorney General’s website at www.ArkansasAG.gov or call the office’s Consumer Hotline at (800) 482-8982.

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