Some companies and law firms use false promises to take advantage of consumers who need help with their back tax debt to the IRS. These companies charge a high upfront fee for their services. They tell consumers that they can stop IRS collection activity and resolve IRS problems.
Once they collect their fee, these companies often fail to provide the promised tax relief. Instead, they keep asking you for the same documents again and again. They finally reject your case by saying that you won’t qualify for the program. Or their negotiation with the IRS regarding your tax resolution failed. Some companies never even submit a request to the IRS.
In the end, these companies typically refuse to refund the fee that consumers paid them.
Read More: How Debt Settlement Services Can Help You Pay Off Debt Faster
What is Tax Debt Relief?
To clearly understand tax debt relief, we must understand what tax debt is. Tax debt is the amount of money that you owe to the government or IRS because you either didn’t pay the tax completely or on time. For example, you owe $3000 in taxes till the end of the month, but you failed to pay it on time. Then the IRS will add penalties and daily interest to your unpaid tax. So we can say:
TAX DEBT= Tax amount + Penalties + interest
There are several reasons why you owe tax debt
- If your tax deductions do not line up with your annual income
- If you are not regularly remitting income taxes
- If you are miscalculating your total annual tax
- If you are failing to set enough money aside to pay your taxes
- Neglecting your taxes for several years can accumulate a huge amount of tax debt
So, tax debt relief is a legal program and strategies offered by the Government or IRS to make it easy for the taxpayer to pay the tax debts. These reliefs include payment plans, offer in compromise (OIC), penalty abatement, currently not collectible (CNC) status, etc.
To get any of this relief, you can ask for help and contact Tax Settlement Services. Your professional assistant negotiates with the IRS to secure reduced penalties or extended repayment terms.
Why Scammers Target Taxpayers
Owing money to the IRS triggers fear and urgency in taxpayers. To deal with this fear and confusion, people often contact financial professionals who can help them settle their debts. In such highly pressurized situations, they are unable to detect the red flags in settlement companies. Due to a vague mental state, they fall prey to scammers, who charge them high upfront fees. And in exchange, do nothing but make fake promises
Moreover, people want to come out of such situations as soon as possible. The scam settlement companies usually advertise themselves through hooks like settling tax debt for “pennies on the dollar,” eliminating penalties, or getting relief you usually don’t qualify for. These pitches lure taxpayers, and they blindly fall for them. Even though many of the payers also knew that legitimate programs have strict rules and eligibility criteria.
In short, scammers target taxpayers because fear weakens defenses. Tax deadlines and notices create urgency and confusion among taxpayers. Scammers target their vague state of mind with their alluring promises. Understanding these pressures helps you spot red flags and avoid fraud before it happens.
Common Types of Tax Debt Relief Scams
Now, we know why scammers usually target taxpayers. Let’s learn about the most common tactics used by them to scam people.
Fake IRS Agents Threatening Immediate Arrest or Asset Seizure
Some scammers present themselves as IRS agents and call taxpayers directly. They portray themselves as IRS agents perfectly. To do so, they complete their homework and dig out every bit of taxpayers’ personal information. They threaten to arrest, withhold a portion of their wage, or seize assets unless they pay immediately.
Such scammers play with your fear of an IRS notice and create a panic situation for you. So you react without thinking for a second. Legitimate IRS agents will never demand instant payment or threaten you about consequences over the phone.
Advance Fee Scams
During tax season, some scammers present themselves as tax preparers or legal consultants. They lure you by making big promises about tax relief. For assistance in your tax preparation process, they ask for high upfront fees. Once they have their fees and your personal details, they either file a false return, steal your refund and disappear. In some cases, they take upfront fees and trick you into signing incorrect tax forms.
Scams Exaggerating IRS programs like OIC
Some fraudsters act as debt settlement professionals and trap you by making promises to negotiate on your behalf with the IRS for your tax debt relief. They exaggerate IRS tax debt relief programs, like the Offer in Compromise. They make you believe that they can erase your tax debt instantly. In reality, IRS tax debt relief programs are backed with strict rules and regulations and not everyone can qualify for them. If someone is asking for an overnight solution or relief, it’s definitely a scam.
Some scammers act as “tax consultants” without having any IRS authorization. In reality, only professionals with IRS-recognized credentials can represent you. These unlicensed operators often charge high fees, provide little to no service, and leave you in deeper financial trouble.
Phishing Emails & Fake Websites
Phishing scams are the most common among tax frauds. Scammers send emails and use their fake website (very similar to the IRS or tax authorities) to ask you for sensitive information like your Social Security number, bank details, or filing status. They use this sensitive and personal information to scam you. Since they often copy real IRS branding, they appear genuine. But remember, the IRS will never ask you to confirm personal details over email or through a website link.
Warning Signs of a Tax Debt Relief Scam
- Such companies use alluring pitches and hooks to advertise their company, like “We’ll settle your IRS debt for pennies on the dollar.”
- Scam companies target your fear due to an IRS notice and use pressure tactics to trap you. They can pressure you by saying that your immediate decision is required within one day, otherwise you won’t qualify for this offer, and your debt amount keeps rising.
- Negotiating for tax debt relief is a hefty and difficult procedure. It cannot be resolved overnight. Scam companies lure you by asking to solve your matter with the IRS within a few days. They promise you openly to eliminate the interest or penalties you owe.
- Fraudulent companies and professionals send letters or emails claiming that you qualify for a government plan. Usually, scammers want you to think you are working with a government entity related to the IRS.
- Charges a large upfront payment before taking the first step toward your debt tax resolution process.
- Once you pay advance fees, they use delaying tactics like asking for the same documents again and again. Finally, they say that you no longer qualify for this relief program or that the IRS has rejected your negotiation case.
How to Protect Yourself from Tax Debt Relief Scams
- Before paying the company for settlement and signing the contract, look for its credibility and review its refund policy.
- Make sure that no complaint is filed against the company at the Attorney General’s Consumer Protection Team and Better Business Bureau
- Submit an Installment Agreement Request (Form 9465) with the IRS if you owe less than $10,000.
- Consult and hire only those companies that are well-established, have local presence, and are listed and rated on the Better Business Bureau website
- Ask about their staff and the salespeople they employ. Find out how the staff is paid. Reputable companies usually won’t hire staff on a commission basis
- Follow the IRS guidance on choosing a tax professional and use the IRS Directory of Federal Tax Preparers with Credentials and Select Qualifications to find a professional and enrolled agent who has the authority to represent you in negotiating with the IRS.
What to Do If You’ve Been Scammed
If you have been the victim of a tax-relief scam or if you would like to file a complaint, please contact DIFS, the IRS, and the Attorney General’s Office. If you have a complaint about a debt management company, contact the DIFS Office of Consumer Services. Moreover, you can contact your bank and stop the payment process.
Watch this video below to learn more about tax debt relief scams
FAQs About Tax Debt Relief Scams
What is tax debt relief?
Compensation for the debts you owe on your unpaid taxes is known as tax debt relief. If you are unable to pay a lump-sum amount, the IRS gives you options like payment plans and an Offer in Compromise. If you are facing a serious financial situation, the IRS can also temporarily pause collection.
Why do scammers target taxpayers?
Scammers target the fear of an IRS notice. They create a panic situation to elevate your confused mental state to trap you. Moreover, they lure you to save big on your tax debt by negotiating with IRS authorities. Because fear clouds judgment, many taxpayers fall for these schemes without checking the company’s legitimacy
What are the warning signs of a tax debt relief scam?
Scam companies always contact you first. They promise instant tax debt relief and demand high upfront fees. Other red flags include high-pressure sales tactics. They trap you by telling you that you’ll qualify for special government programs without even reviewing your case.
What are real tax debt relief options I can trust?
The IRS itself offers real programs like Installment Agreements, Offer in Compromise, and Penalty Abatement. To apply, you can work directly with the IRS or hire a qualified tax professional such as a CPA, enrolled agent, or tax attorney. Always verify credentials through the IRS directory or your state’s licensing board before hiring anyone.
What should I do if I’ve already been scammed?
If you have been the victim of a tax-relief scam or if you would like to file a complaint, please contact DIFS, the IRS, and the Attorney General’s Office. If you have a complaint about a debt management company, contact the DIFS Office of Consumer Services. Moreover, you can contact your bank and stop the payment process.
