Tax relief advocates play an important role in helping taxpayers navigate the complex tax code and resolve issues with the IRS. They provide valuable services to individuals and businesses struggling with tax debt by negotiating settlements, setting up payment plans, and finding ways to reduce tax liabilities.
What do tax relief advocates do?
Tax relief advocates, also known as tax resolution specialists, help taxpayers in a variety of ways including:
- Analyzing tax returns to identify errors and potential savings
- Negotiating with the IRS to settle tax debts for less than what is owed through Offer in Compromise or penalty abatement
- Setting up installment agreements so taxpayers can pay off balances over time
- Applying for currently not collectible status to pause IRS collection efforts
- Requesting innocent spouse relief for taxpayers whose spouses failed to pay taxes
- Assisting with audit defense and appealing IRS decisions
- Providing tax planning strategies to avoid future tax problems
Many tax relief companies employ CPAs, enrolled agents, and former IRS agents who use their expertise to resolve tax issues. They act as advocates for the taxpayer, dealing directly with the IRS and negotiating the best possible outcome.
When should you hire a tax relief advocate?
Here are some common situations when hiring a tax relief advocate makes sense:
- You owe a significant amount of back taxes – Tax bills of $25,000 or more often warrant professional help negotiating a settlement or payment plan.
- You are facing aggressive IRS collection efforts – If the IRS has levied your bank account or threatened to seize assets, a tax pro can intervene.
- You haven’t filed returns in multiple years – Delinquent filers may benefit from having an advocate deal with the IRS to set up a compliance plan.
- You are struggling with business payroll taxes – Payroll tax issues like failure to pay or deposit taxes open the door for penalties, so assistance is advisable.
- You are going through a major life event – Divorce, job loss or periods of financial hardship may qualify you for tax relief options.
- You disagree with an IRS audit decision – Tax professionals can help dispute IRS findings and represent you at appeals conferences.
The more complex your tax problem, the more you stand to gain by working with a professional to achieve the best resolution.
What credentials should tax advocates have?
When vetting tax relief companies, look for these credentials:
- CPA – Certified Public Accountant
- EA – Enrolled Agent
- Attorney licensed in your state
- Former IRS agent or tax attorney
CPAs and EAs are licensed by the IRS, meaning they are authorized to represent taxpayers in IRS matters. Attorneys can also assist provided they don’t have state bar restrictions.
Former IRS agents and tax attorneys have inside knowledge of IRS procedures that enables them to navigate the system effectively.
Check credentials and make sure anyone you hire has no history of disciplinary actions taken against them.
How much does a tax relief advocate cost?
Tax relief advocates typically work on a contingency fee basis, meaning there is no upfront cost and you pay a percentage of the tax savings achieved. Fees often range from 10% to 20% of the settled tax amount, depending on the complexity of the case.
For example, if you owe the IRS $20,000 and negotiate a settlement of $5,000, the fee might equal 15% of the $15,000 savings or $2,250.
There may also be initial retainer fees ranging from a few hundred dollars to several thousand dollars. Make sure to understand fee structures in advance so there are no surprises.
Some things that can influence costs:
- Degree of tax relief needed – More complex cases take more time and effort, impacting fees.
- Services provided – Fees may vary based on tasks like audit defense, penalty abatement, etc.
- Tax professional’s experience level – CPAs or attorneys may charge higher rates than enrolled agents.
- Location – Advocates in high cost cities tend to have higher fees.
While tax resolution services aren’t free, the cost is usually far less than the amount of taxes at stake. Reputable tax pros can save clients far more than they charge.
When should you avoid a tax relief company?
Here are some red flags to watch out for:
- Promises to settle tax debt for pennies on the dollar – The IRS must believe the amount is justified.
- Upfront fees before providing services – Most firms work on contigency.
- Lack of tax specialist credentials – Avoid non-licensed companies.
- Pressures you to take questionable deductions – This raises audit risks.
- No physical office location – Opt for an established local firm.
- Refuses to provide a detailed fee agreement – Transparency is key.
Unscrupulous companies may exaggerate abilities to wipe out tax debt or use dubious schemes that create more problems. Work with reputable local professionals.
6 strategies tax relief advocates use
Tax advocates employ a variety of proven strategies and methods to resolve IRS issues for clients:
1. Offer in Compromise (OIC)
An OIC allows taxpayers to settle tax debts for less than the full amount owed in certain circumstances:
- Doubt as to Collectibility – Insufficient income and assets to pay the full debt
- Doubt as to Liability – Disagreement about whether the amount owed is accurate
- Effective Tax Administration – No doubt about the debt, but specific circumstances warrant settlement for less
Tax advocates prepare strong cases detailing a taxpayer’s financial situation to convince the IRS that accepting a settlement is in their best interest. OIC acceptance rates are around 40%.
2. Penalty Abatement
Tax advocates request that the IRS abate or remove penalties assessed if there is reasonable cause:
| Penalty Type | Reasonable Cause Arguments |
|---|---|
| Failure to File | Death in family, serious illness, incorrect advice from tax pro, etc. |
| Failure to Pay | Bank errors, inability to borrow, disability, medical problems, etc. |
| Accuracy-Related | Mistake despite reasonable care, disability, new complex law, etc. |
Penalty abatement can eliminate tens of thousands in penalties and interest, reducing tax bills substantially.
3. Installment Agreements
Allows taxpayers to pay off tax debt over 6-72 months through monthly installment payments. Options include:
- Standard IA – Pay off balance in 6 years or before collection statute expires
- Short Term IA – Full payment within 24 months
- Partial IA – Small monthly payments made with an OIC
- In-Business Trust Fund IA – Payroll tax installment plans
Tax advocates negotiate the most favorable terms, lowest payments and longest durations. They monitor IAs and modify if financial circumstances change.
4. Currently Not Collectible Status
Taxpayers demonstrating temporary financial hardship may qualify for CNC status which pauses IRS collection efforts. Examples include:
- Out of work and living on savings
- Reduced income due to illness or disability
- Excessive debt and minimal equity in assets
CNC provides temporary relief for up to 1 year. Advocates must periodically verify hardship continues to avoid collections restarting.
5. Innocent Spouse Relief
Available to taxpayers whose spouses failed to pay past taxes owed. Three forms include:
- Innocent Spouse Relief – Unaware spouse is not liable
- Separation of Liability – Allocates liability between spouses
- Equitable Relief – Unfair to hold spouse responsible
Tax advocates gather documentation proving lack of knowledge or financial separation. Submitted requests have an approval rate around 50%.
6. Collections Appeals Program (CAP)
If the IRS plans to levy property, advocates can request a CAP hearing to dispute it or propose alternatives like an OIC or IA. CAP reviews can also suspend IRS collection actions while pending.
How the process works with a tax advocate
The typical process with a tax relief firm involves:
- Consultation – Review case details, tax issues involved, goals and timeline expectations.
- Engagement – Sign contracts detailing services, fees, rights and responsibilities.
- Information gathering – Obtain tax returns, IRS notices, financial documentation to assess situation.
- Case analysis – Examine circumstances and tax code to develop tax resolution strategy.
- Resolution preparation – Prepare submissions, forms, documentation to support arguments.
- Submission & negotiation – Present proposed resolution to the IRS, negotiate best terms.
- Resolution & compliance – IRS accepts and formalizes agreement, oversee adherence to maintain resolution integrity.
The advocate handles interacting with the IRS, filing paperwork, gathering documents and negotiating on the taxpayer’s behalf throughout the process.
How long does the tax resolution process take?
The timeline depends on the complexity of the tax issues and resolution method:
- Offer in Compromise – Usually 9-16 months to finalize but can take over a year in some cases.
- Penalty Abatement – Typically 1-6 months depending on volume of penalties.
- Installment Agreement – Around 1-3 months is common.
- Currently Not Collectible – Can be declared almost immediately but requires ongoing monitoring.
- Innocent Spouse Relief – Expect around 6-12 months for the IRS to issue a determination.
The advocate will provide an estimate upfront and keep you updated on progress throughout the process.
Results clients can expect from tax relief services
Professional tax advocates routinely deliver significant results like:
- Tax debt reductions of up to 90% via settlements or abatements
- Elimination of penalties, interest charges and wage garnishments
- Affordable installment payment plans approved by the IRS
- Avoidance of tax liens that could damage credit scores
- Quick resolution of bank levy and asset seizure threats
- Halting stressful IRS collection notices and calls
- Correction of compliance issues and guidance on preventing future tax problems
Reputable tax advocates make the IRS collection process smoother and less stressful while achieving far better financial outcomes for clients.
Can you negotiate tax debt yourself?
Yes, taxpayers have the right to navigate the IRS dispute process and negotiate tax relief on their own without hiring a professional. However, there are some significant disadvantages:
- It’s very complex – The tax code is confusing even for experts.
- Errors can backfire – Mistakes negotiating with the IRS may worsen your situation.
- There are tight deadlines – Missed IRS response windows can hurt your case.
- Documentation is critical – Failing to properly support claims risks rejection.
- Tax knowledge is limited – IRS agents know far more about the intricacies of tax law.
- The IRS plays hardball – They strategically negotiate to maximize collections.
- Objectivity is harder – Emotions can complicate negotiations.
The IRS collected over $3.5 trillion in 2019, so they’re skilled negotiators focused on every tax dollar owed. While possible for taxpayers to self-advocate, hiring experienced professionals significantly improves outcomes in most cases.
Conclusion
Tax resolution specialists serve an invaluable purpose in defending taxpayers against IRS collections and penalties by achieving reductions in amounts owed and affordable payment terms. They level the playing field against a powerful IRS and make the process far less intimidating. Taxpayers facing enforcement action or struggling with substantial debt should strongly consider hiring a credentialed advocate to negotiate the lowest possible resolution. Their fees are well justified by the dramatic financial savings and peace of mind achieved for clients undergoing tax hardships.