The tax preparation industry is a thriving hotbed for money-makers. It’s not often that a small business owner can consolidate the bulk of their work into a quarter of the year and then coast throughout the other nine months, but for successful tax preparers, that is exactly what they are able to do.
Many preparers also double as tax resolution specialists. For a price, they will negotiate on your behalf with the IRS. Larger firms, like Omni Financial, JK Harris, and the former Tax Lady Roni Deutch, recently forced to shut down after allegations of client abuse, have all made a big splash in the pitfall that so many unwitting taxpayers fall into. One word: Ignorance.
Tax prep and resolution firms rely on the perception that there is lack of knowledge and awareness on the part of a taxpayer, and couple that with the smoke and mirror effect that the IRS is far too mighty and powerful to equitably deal with individual taxpayers on a one-on-one basis.
To be sure, some attorneys and CPAs are certainly qualified and do have the best interests of their clients at heart. Complicated tax matters and certain appeals, especially when they are elevated to Tax Court, are perhaps best left to paid representation.
That being said, the majority of the time when taxpayers have an outwardly unmanageable tax situation, one simply needs to take a step back and familiarize themselves with some simple truths. Before you dig into your pockets to pay out funds that you don’t have, keep the following in mind.
The options are the same, no matter who you are.
Lawyer, CPA, attorney, Enrolled Agent, Actuary or family member. All have the same capacity before the IRS. Form 2848 is used to authorize these individuals to represent you in a tax or collection matter. Each of these individuals has the same rank and capacity to parley with the IRS in your stead.
Independently, each one has different qualifications. A lawyer or CPA may practice in many broad legal forums, but not be specialized in tax law. An Enrolled Agent is dedicated solely to tax matters and is the only title conferred by the IRS after a regimented training program which is overseen by the Office of Professional Responsibility.
The point is, don’t let the title intimidate you. There are no options available to any of these paid mediators that are not available to you directly. The IRS does not conduct business like a traffic court. One can’t get the IRS to administer a plea bargain, as it were, just because they are a lawyer.
Stay away from the Unenrolled Return Preparers and the Form 8821 designees.
An Unenrolled Return Preparer is just that. A person who has been authorized to prepare returns and discuss only those returns, but who cannot do anything else for you. They are “unenrolled” in that they do not have the qualifications that grant them anything beyond a limited practice. According to the IRS, an Unenrolled Preparer cannot discuss any tax balance that has been turned over to the IRS Compliance department (collections).
Form 8821 is used to authorize any person to talk with the IRS about specific tax matters. In other words, the person likely has no credentials; otherwise they would have you execute a Form 2848. 8821 designees can call and inquire about the status of your tax balance or issue, but they cannot negotiate deadlines, set target dates, or enter into any type of closing agreements on your behalf.
Many large firms use Unenrollex Return Preparers and 8821 designees to farm out the bulk of the work on your account. Then, only at the end, does the valid Power of Attorney involve himself or herself simply to close the deal, which you more than likely could have done yourself anyway.
Check to see whom you are actually hiring, and check on line 5 of Form 2848 if your lawyer or CPA has elected to substitute representatives. If so, they likely are not going to personally oversee your case from start to finish.
It only costs $150 to file an Offer in Compromise
A popular advertisement that tax resolution firms use is the pennies-on-the-dollar approach. Any such term, like “one-time settlement” and “tax amnesty programs,” all refer to one thing and one thing only: The IRS Offer in Compromise program, which has been around for decades and is going nowhere.
Don’t be duped by any so-called brief window of opportunity that the IRS has genially opened but is supposedly ready to slam shut on your fingers if you don’t get your offer in immediately.
The Offer program is designed for taxpayers to do themselves. A worksheet is included to help you determine exactly how much your offer should be, and the workbooks plainly talk about how to file an offer, what category your offer should be submitted under (Doubt as to Liability or Collectability), and the various repayment options and terms.
The IRS only charges a $150 application fee to process your offer. You also must make monthly payments in line with your offer if you plan on paying the offer each month. If you are offering a lump-sum payment, you must send in twenty percent. These payments will be applied against your tax balance, even if your offer is rejected. For this reason, make sure you are a strong applicant for the program.
Before you surrender a grand or more (the going rate to have an Offer “prepared” for you), talk with the IRS about your eligibility for the program and what your options are. If you are a candidate, they will tell you. If not, then they will advise you of the other payment options, which will save you tons of money in the long run.
More from this Contributor:
When to file an Offer in Compromise with the IRS
10 reasons why taxpayers owe the IRS
Tips for choosing a tax professional