While the Federal Trade Commission has cracked down on debt settlement and loan modification firms that charge upfront fees, little has been done to rein in tax resolution companies that promise to reduce IRS liabilities. The FTC has allowed a number of these operations to continue while making a determination whether the agency has authority over them.
With the April 18th tax deadline a month away, tax relief companies have increased late night advertising and Internet promotions promising to settle delinquent IRS debt for pennies on the dollar. Several of these companies are under investigation for deceptive practices.
Florida Attorney General Pam Bondi’s office has initiated a civil inquiry into Texas based Tax Masters and South Carolina based JK Harris and Company following the receipt of 26 and 92 complaints respectively. These companies solicit clients nationwide promising to reduce anxiety and debt to the IRS.
Tax Masters is being investigated for allegations of unfair competition and deceptive trade. The Texas and Minnesota attorneys general also filed civil charges of deceptive and unfair trade practices against them in 2010.
JK Harris and Company is under investigation for allegedly violating a 2008 settlement with Florida and 17 other states over what regulators said were misleading sales tactics. Among the allegations were false claims that case processors were former IRS agents or tax experts and that the company failed to provide refunds for clients it was unable to help. State officials say JK Harris is cooperating with the investigation.
Some tax relief operations are the target of legal inquiries and lawsuits by regulators in multiple states. Thousands of consumers nationwide have complained they demanded advance fees of up to $25,000, while promising relief from back taxes and penalties, then did nothing.
Tax-relief companies have flourished as the Internal Revenue Service has more aggressively pursued delinquent taxpayers. According to the IRS Data Book, the agency filed nearly 1.1 million liens nationwide in fiscal year 2010, an increase of over 60 percent from 2007.
In a seemingly unregulated industry, tax resolution firms have gone largely unnoticed. A lack of determination of authority from the FTC, tough economic times, and a taxpayers desire to reduce anxiety and IRS debt, have allowed them to exist. Good common sense in choosing a credentialed tax expert and paying huge upfront fees has been ignored.
According to the Internal Revenue Service, three professionals are authorized to represent taxpayers before them – attorneys, certified public accountants and enrolled agents, all whom must pass an IRS test and take refresher courses.
In the absence of representation, consumers can negotiate back taxes and penalties directly with the Internal Revenue Service.
Following the 2008 settlement, JK Harris changed its business model and claims to charge only in advance for a report that analyzes what program a taxpayer would be qualified to participate. Taxpayers could then use the report to negotiate directly with the IRS or retain JK Harris to represent them.
Tax Masters said the company adopted a similar model last year and is charging fewer upfront fees. Following an analysis, clients can decide if they want Tax Masters to pursue a resolution and will be charged only if the company is successful. The average Tax Masters client pays $4,500.
Regulators and consumer advocates warn against using companies guaranteeing what the Internal Revenue Service calls an “offer in compromise” — a settlement for reduced tax payment. Although increasing, IRS statistics show that only 25 percent of compromise applications are granted.
Taxpayers seeking relief from IRS debt should also be aware that companies claiming to be tax specialists may simply be advertising the services of a third-party.
Unlike the debt settlement and loan modification industry, tax resolution services are unregulated in Florida. Despite the huge volume of complaints regarding advance payments and deceptive advertisements, lawmakers have taken little notice. No regulation seems on the agenda of the 2011 Florida legislature.
To file a complaint with the Federal Trade Commission, visit www.ftc.gov or call (877) FTC-HELP (877-382-4357).
To file a complaint with the Attorney General’s Office, visit www.myfloridalegal.com or call (866) 9-NO-SCAM (866-966-7226).
To review Bill Lewis’ entire consumer protection series, visit http://www.williamlewis.us.
William E. Lewis Jr. & Associates is a solutions based professional consulting firm specializing in the discriminating individual, business or governmental entity. To learn more, tune into The Credit Report with Bill Lewis, weekdays at 9 o’clock on AM 1470 WWNN.