Making the decision to take control of your finances and commencing on the journey of tax resolution can be petrifying and it is easy to become paralyzed with fear leading one to become susceptible to inaccurate or even deceitful information presented to you. There are many firms who may perpetuate myths in order to drum up business but there are also numerous ethical tax agencies available to assist with resolving tax problems. It is important to be aware of the myths that exist.
MYTH 1: You only have one opportunity to resolve any tax liabilities with the IRS
FACT: This statement is false and is used as a marketing tool to prompt clients to act instantly. The Tax Increase Prevention and Reconciliation Act of 2005 made changes to the program and now allows for lump-sum offers and periodic offers. Although tax resolution is not a once off event it is however the duty of the tax professional to provide sufficient education to rehabilitate delinquent taxpayers and change the negative financial patterns.
MYTH 2: When you owe the IRS and have a negative cash flow it is easier to qualify for an Offer in Compromise.
FACT: Whilst the IRS has the jurisdiction to negotiate federal tax liabilities by accepting reduced payments in some situations this is done circumstantially when the taxpayer can prove that they have no income or do not owe any tax. The IRS will consider factors including the taxpayer’s collection potential and equity in assets and disposable income. Therefore even if a taxpayer is living pay check to pay check with a considerable tax debt, the IRS may still legally collect the full amount owed by the taxpayer.
MYTH 3: It is recommended that you work with a tax firm that has ex-IRS agents in their employ.
FACT: Enrolled Agents (EA’s), and Certified Public Accountants (CPA’s) are professionals with the knowledge and experience required to represent taxpayers and have been representing clients before the IRS. Not only attorneys and CPA’s unrestricted in their representation but they are also authorized to practice in any IRS offices. The key to selecting professional help is to look for integrity and expertise in tax resolution planning. While the IRS does help with understanding the tax process, it does not always guarantee expertise in tax resolution planning, which is a key element of the process.
MYTH 4: Being overwhelmed in debt qualifies you for a “pennies on the dollar” resolution
FACT: You should avoid companies who use the Offer in Compromise strategy as a selling point. This is a grossly oversold technique to entice people with financial problems and there is no guarantee that you will qualify. People with consumer debt who have assets or future income will not qualify. Expenses such as credit cards and cable television bills do you qualify as allowable expenses for the tax resolution process.
MYTH 5: Large tax firms are more efficient and cost less than local enrolled agents, CPAs, or tax professionals.
FACT: There is not data to support this myth. The cost, expertise and level of service and professionalism varies between firms. If you are actively involved in the tax resolution process and begin to take control of your financial future you will find the most cost effective solution, whether you embark on the journey solo or seek the services of a professional tax representative.