Although most tax relief companies are legitimate, there are scams that prey on people’s desire to find a quick solution. There are two main types of scams:
- Tax settlement companies that charge upfront high fees but don’t provide results
- Companies that charge fees by telling you to do something illegal, then they take your money and run.
The second one is the most damaging to you, because they advise you to do something that breaks the law. For instance, they tell you to use a new Social Security number or Employer Identification Number. Basically, the advice is to try to hide from the IRS and start fresh with a new identity. This is a felony offense, so don’t do it!
The first scam for settlement is, by far, the most common. Companies claim that they can settle your tax debt for “pennies on the dollar” and that they “guarantee they can reduce your debt.” Again, they charge high fees to give you a quick settlement, but they don’t deliver. They also don’t give you your money back, even though they said they guaranteed the service.
To be clear, tax settlement is possible, but it’s not as common as these companies make it sound. You must fully disclose your financial situation to the IRS. After a thorough review, they may grant an Offer In Compromise ONLY if they see there is no reasonable expectation that you can repay everything you owe.
To avoid scams, just follow the three tips we provide above to review any company before you sign up. As long as you do your homework, you can avoid getting scammed.