Over the years I have seen a lot of shady business in the tax resolution industry.  This includes misrepresentation, over promises, and most of all unlicensed sales persons giving tax advice.  With that in mind, here are 4 questions any consumer should ask before hiring a tax resolution firm to help resolve their tax debts…

#1: Are you licensed to be providing me tax advice?

Many tax resolution firms use unlicensed sales person to sell their services.  These sales people  do not have the expertise or professional knowledge to be advising you on your tax matters, additionally it is illegal to do so.  Oftentimes, they have no formal education in taxation and have not passed any of the required licensing examinations administered by the IRS or state taxing authorities. 

The only people that can legally advise you on tax matters are Attorneys, Certified Public Accountants (CPAs), and Enrolled Agents (EAs).  It is very important that you ask the person you are speaking to if they are in fact licensed.   If they do not have a license you should probably not take and advice from that person.  Think about it, would you take medical advice from an unlicensed Doctor?  Would you take legal advice from an unlicensed Attorney?

We have found that in most instances, these sales persons are actually reading from a script that has been prepared by the sales manager… who also happens to not have a license.  In many instances these salespersons will avoid answering your question by giving you some fancy title (“Senior Tax Analyst”, “Director of Resolutions”).  Remember, any answer other than “Attorney”, “CPA”, or “Enrolled Agent” means they are not able to legally represent you or give tax advice.

#2: Are you the person that will be representing me with the IRS (or State)?

 Be sure to ask if the person you are speaking with is the actual person that is going to represent you in front of the IRS and/or state taxing agencies.   If the person you are speaking to is not the actual person then ask to be transferred to the person that will be representing you.  You will need a guarantee (in writing) that your representative is an Attorney, CPA, or Enrolled Agent. 

The IRS will not allow a non-licensed representative to negotiate on behalf of a taxpayer.  Some of the large national firms have unlicensed assistants negotiate with the IRS.  Before you sign any retainer agreement or pay any money be sure to see IRS form 2848, Power of Attorney, to see the specific individual(s) that will be representing you.  If completed in its entirety, the 2848 will include all proper licensing information.

#3: What is your experience in actually negotiating a tax resolution directly with the IRS?

Has the person you are speaking to actually worked on tax resolution cases as a representative? It’s one thing to be licensed, but quite another to have actual real-world experience.  If so, ask what that persons track record is and what the monthly case load for him/her.  It is reasonable to expect any licensed representative to be working a handful of cases at once.  However, you do not what your representative spread so thin that they haven’t given your case all the time and attention it needs.  Any case-experienced representative should be able to walk you through the IRS tax resolution process from start to finish.

#4  What Exactly is included with the Fee you have Quoted me?

The tax resolution industry for pricing discrimination and add-on sales for work that doesn’t need to be done.  Charging for tax preparation that doesn’t need to be done, penalty abatements that do not exist, and “audit protection” are just some of the examples we see commonly.  Many tax resolution companies operate on a “flat fee” basis.  Which means the fee you are quoted should include everything need to successfully resolve your case. 

Make sure your fee includes all of the necessary for your resolution:

• Appeals Representation
• Full negotiation of resolution
• Preparation of missing tax returns for the past 6 years
• Removal of any existing levies or wage garnishments (if possible)
• Representation for all tax types (such as income, payroll, civil penalties), including state taxes if needed
• For business owners, make sure you are covered for Trust Fund Recovery Penalty representation. This is critical to prevent getting personally stuck with your business tax bill.
• Application for penalty abatement if you meet “reasonable cause criteria” or First Time Abatement (if eligible)

If the tax firm you are speaking to bills on an hourly basis, rather than a flat fee basis, be sure to see a schedule of service fees and get a copy of their billing policy. Understand that hiring a representative to negotiate on your behalf is not a guarantee that your case will be resolved and always remember that no one can guarantee a particular outcome for your case.

Although your licensed representative should handle just about all interaction with the IRS or state taxing authorities, your participation with your representative is essential to the resolution process.  Be sure to can your licensed representative back in a timely manner and provide all paperwork that is requested.  Also be sure you select somebody that you are going to be able to work with without personality conflicts. Lastly, be sure to get everything in writing.  This includes covered services, responsibilities, and deadlines in case of a disagreement between you and your representative.