We are bombarded with advertisements from JK Harris, TaxMasters, Roni Deutch, and a host of other tax relief firms, asking that we let them help with IRS audit and collection problems. Many give examples of tax debts being settled for pennies on the dollar. They imply that your case will be handled by former IRS Revenue Agents, CPAs and other tax professionals. These firms are frequent targets of consumer complaints and suits by consumer watchdogs because they often take your money and fail to deliver. A systemic problem with the tax relief firms is that they spend too much on TV advertising and telemarketers and not enough on tax professionals to do the work on the complicated problems the tax relief firms are hired to handle. Here is a sampling of Attorney General complaints.
In April of 2009, Texas Attorney General Greg Abbott sued JK Harris and related entities asking that they be enjoined from violating the Texas Deceptive Practices Act. The complaint alleges that more than 1,000 complaints were received from consumers who had paid for work that was not done; that the JK Harris advertisements represented that tax debts could be compromised when JK Harris well knew that IRS compromises had become extremely difficult to obtain; that JK Harris advertises that it has over 325 offices in the country implying that consumers could sit down with someone who would work on the merits of their case, when in fact, all the work that JK Harris does is handled in a facility in South Carolina and the offices scattered around the country are merely sales offices; that representations were made that cases would be handled by a case manager, but in practice the case managers could seldom be located. The advertising implies that the work would be done by tax professionals when almost all the work was done by non-credentialed clerical people.
The case was settled and in April 2011 with JK Harris paying more than $1.2 million and agreeing to injunctive relief. JK Harris has a long history of consumer protection litigation with the state Attorneys General.
In December 2010 Minnesota Attorney General, Lori Swanson, sued TaxMasters, Inc., a Houston based tax relief company, alleging that the company got consumers to pay advanced fees of $2,000–$8,000 by misstating the help it would provide people with unpaid tax bills. The Minnesota Attorney General press release states the following:
TaxMasters heavily advertises on late-night television. In 2009 the company spent nearly $14 million on its television, radio and Internet advertising campaigns. Consumers who call TaxMasters talk to a “tax consultant,” who is actually a salesperson. A job ad for this position states: “Previous tax knowledge is not required, but a firm understanding of the sales process and of selling services… is a strong plus.” Salespeople often make unrealistic promises of the company’s ability to help in order to dupe consumers into paying thousands of dollars in advance fees. The company also falsely told some consumers it could put an immediate stop to collection efforts, such as wage garnishments, levies, or liens. The lawsuit alleges that TaxMasters sometimes left people in worse financial shape after paying the company’s advance fees, failing to respond to important deadlines or requests of tax authorities.
Among other things, TaxMasters:
Overstated its ability to reduce or settle peoples’ tax obligations.
Charged consumers thousands of dollars in advance fees for help in reducing tax bills that the company knew or should have known would not be negotiated by the IRS.
Failed to deliver on its promises and sometimes even failed to meaningfully contact the IRS.
Failed to make refunds to consumers who complained that the company did not take the promised action.
Tax Masters is a Nevada corporation with its headquarters in Texas. The lawsuit was filed in Hennepin County District Court and alleges that the company engaged in consumer fraud and deceptive trade practices. It seeks restitution for consumers, injunctive relief, and civil penalties.
This lawsuit is the latest in a series of nationwide enforcement efforts in recent months against tax relief companies that charge consumers thousands of dollars in advance fees based on inflated promises. In May, 2010 the Texas Attorney General filed a lawsuit against TaxMasters, which is pending. In October, 2010 the Federal Trade Commission filed a lawsuit against another tax relief company, American Tax Relief, LLC. In August, 2010 the California Attorney General filed a lawsuit against another large tax relief company, Roni Deutch.
The backtaxeshelp website reports:
Months after being sued by California Attorney General for $34 million, Roni Deutch has closed her law firm and surrendered her license. The “Tax Lady” has made it into the news many times since last August when the court prohibited Deutch from destroying evidence and she proceeded to shred millions of pages of documents at her firm. Then on April 20th 2011 the California Attorney General asked the court to hold Deutch in contempt of court and imprison her up to 5 days for each violation. In addition to shredding documents, she also violated a preliminary injunction by not issuing $435,000 in refunds to her clients.
Shopping for Professional Help
Here are some questions to ask before hiring anyone to handle your case:
Who will handle my case?
In what state are they licensed to practice as an attorney or CPA?
What is their CAF number? (That is the number issued by the IRS to indicate they are enrolled to practice before the IRS and subject to discipline by the IRS.)
Where is their physical office located?
What are my problems?
What will you do for me to solve each of my problems?
What will it cost?
How long will it take?
What exactly are we trying to achieve?
Do you feel confident about being able to achieve these goals?
If you cannot get straight answers to these questions, keep looking. As a minimum the professional should be able to define the problems, outline the steps necessary to solve it and suggest a cost range for their work.
When do you need help with a tax problem?
You need help when you cannot understand the problems and work them out by yourself. There is no shame in asking for help. We have a painfully complicated tax system and people whose exposure to it is filing a tax return once a year simply find it confusing. The people who work for IRS find it confusing. But with work the problems can be figured out and solved.
Audits. If you have an audit notice, it is because the IRS has determined that there is something wrong with your return. The IRS is going to take your financial life apart and look at it in great detail. You will be confused and under a lot of pressure. You need to be represented by someone who can review your returns, determine the extent of your exposure, and negotiate the best outcome for you.
Collections. If you have collection notices from IRS, you should start with a review your returns for accuracy. If the IRS had made up returns for you, it will not have given you credit for the cost of sold, for expenses of a business, or for itemized deductions or exemptions to which you may be entitled. Accurate returns may need to be prepared.
After the questions about accuracy have been answered and the extent of the liability established, you need someone to represent your interests in negotiating how the debt will be handled. Most of the IRS collection activity is handled by the Automated Collection System (ACS), a computerized collection program staffed by people in call centers all over the country. The ACS people assume your account to be accurate and their sole mission is to collect at the lowest possible cost. They will not ask you about the accuracy of your returns or anything else that might benefit you. They will extract collection information from you and make an arbitrary determination of what you can pay. Their job is to collect the account, not to represent you. You need a competent representative who can determine the accuracy of your accounts, who can obtain time needed to work through the problems, who can set up a plan for resolving the accounts that works for you, and, most importantly, who can stand between you and the IRS.
Who can help you with the tax problem?
I outline below some of the professional credentials of the main players in the area, but the most important question in selecting a representative is whether the person you are talking to someone has a history of bringing cases like yours to a successful conclusion. You need to find someone who works your kind of case on a consistent basis and who should be able to solve your problem at a reasonable cost. Look at their advertising material. Do they routinely do the kind of work you need?
Start with me. If you are here you have read my website. Email me at email@example.com or call me (805) 682-6165. I will evaluate your case and give you a proposal for handling it. There is no charge unless we agree on terms and you hire me.
Lawyers. Lawyers are licensed by states to practice in state courts after they have graduated from law school and passed a bar examination. A law license qualifies a person to practice in some courts and before the IRS, but does not by itself suggest competence in tax matters. How does a lawyer become competent in the tax area? It is normally through a combination of taking tax courses in undergraduate and law school and of work experience in handling tax matters for or against the IRS.
Accountants. Certified Public Accountants (CPAs) are licensed to practice and hold themselves out as CPAs after having passed all parts of the state CPA examination and having completed the required practical experience. The accounting profession does not have special graduate schools as do lawyers or doctors. Experience generally comes from work in accounting firms, businesses and government. In addition to CPAs there are also accountants who are not certified and these are often referred to as public accountants.
Enrolled Agents. The IRS has special examinations for people who do not qualify to practice before the IRS by virtue of being a lawyer or a CPA. People that take the test and pass are given a CAF number and are authorized to practice before the Internal Revenue Service. They are described as enrolled agents.
Geography. With the arrival of the electronic office, geography has diminished as a barrier in the search for professional services. I like it when clients can come into my office and see me face to face, but I have for a number of years been working with an employee benefits company that sends me clients from all over the country. It has worked out well.
Pricing. You may think that you cannot afford a tax lawyer to handle your case. I have worked on a number of cases in which tax representation firms have done prior work and I have been surprised to find that my price structure is lower than that of the TV advertisers. Beyond that, I do my own work, I answer phone calls and emails in a timely manner, and I do not have a history of professional complaints.
April 2013 Postscript:
J.K. Harris filed for a Chapter XI bankruptcy in January 2012. That case has been converted to Chapter 7 (liquidation) and the trustee is trying to recover almost $5 million allegedly looted by Harris. Here are the links to a Wikipedia article on J.K. Harris and Company (http://en.wikipedia.org/wiki/JK_Harris_%26_Company) and to an article by Stephen Dunn entitled Tax Resolution Scams 101 (http://www.forbes.com/sites/stephendunn/2010/09/07/tax-resolution-scams-101/). If you need help please contact me.