Tax Resolution: Identifying the Need for Change

The tax resolution industry is highly fragmented with the largest tax resolution firm commanding less than 1% of the industry share. Unfortunately, tax resolution firms are unregulated and many of the largest firms do not have stellar track records of service and performance. Recently I surveyed some of the marketing slogans of tax resolution firms advertising on television and the internet. Most of the messages these companies use to reach new clients convey offers of hope and encouragement. However, some companies are marred with extensive customer service complaints and broken promises. Others flat out mislead their clients, misrepresent their services, or market “pennies on the dollar” and “one time only- act now!” settlements. Here are some marketing slogans that I came across recently:

“You could reduce your IRS tax debt to a fraction and be tax debt free”
“Settle for pennies on the dollar- Ex IRS Agents”
“End your IRS Fears”
“Get the IRS off your back”
“Do not be another IRS victim”
“IRS tax problems ruining your life?”

What do all of these statements have in common? They are attempting to reach at the most common emotions shared by a significant number of taxpayers that owe the IRS: FEAR and DESPARATION. The one thing that is missing sometimes is a message that promotes empowerment and accountability while offering the professional expertise that is often needed to help resolve tax problems. It is true that the financial stresses of debt can be overwhelming and debilitating. The IRS and collection agencies can make even the strongest willed person feel powerless and overmatched. Unfortunately, many desperate people make a huge financial mistake when they let fear guide their decision regarding where to seek tax assistance.

Tax representation firms understand the underlying fear and procrastination that is associated with the typical tax resolution client. Emotions and psychological factors play a key role in the tax resolution process. Tax representation firms also understand that some people with tax problems do not usually possess a high degree of financial literacy. That is why the typical American with tax problems is at risk of being taken advantage of when dealing with the IRS.

The following are some of the most common mistakes that people make when seeking to resolve tax problems with a tax resolution or tax representation firm:

* Focusing solely on getting rid of tax debt rather than on changing the underlying financial behaviors that helped create the tax problem.

* Financing the cost of tax representation services only to dig deeper in debt.

* Allowing their fears and doubts to increase the chances they will make an emotional decision with respect to choosing a tax representation firm.

* Failing to realize that an Offer in Compromise (resolving tax debt for less than the amount owed) is not for everyone.

* Falling for the lure of a commissioned sales agent providing empty promises they will qualify for an Offer in Compromise when more realistic alternatives exist.

* Hearing what they want to hear (“you can get out of tax debt”) rather than what they need to hear (“you can take control of your tax and financial situation”).

* Settling for high interest IRS payment plans when other resources are available to pay off the tax debt faster and with lower interest and penalties.

* Getting taken advantage of by not taking the time to do their homework with respect to seeking professional tax resolution guidance.

* Assuming that their tax professional will do all the work and neglecting to send in relevant documents and paperwork needed to proceed with their case.

* Trying to resolve tax problems without a plan.

Rather than simply offering promises of hope and resolution, I prefer to be upfront with my tax resolution clients and let them know that dealing with tax problems is part of a bigger financial process of change. This process may require a great deal of work on their behalf to implement the tax and financial planning recommendations. The end result of the hard work is a genuine sense of financial freedom and is definitely worth the effort. If you or someone you care about has a tax problem, always remember that the ideal solution starts with a personalized tax and financial plan.