A blog reader from Orange County, California just contacted us after interviewing four other tax resolution companies and tax professionals. What you are going to see is an amazing contrast of fees as well as approaches and solutions to her case.
Their tax issue: She and her spouse owe $42,000 for tax years 2008, 2009 and soon to be 2010. She has been in a $200 installment agreement on tax year 2008. She has received letters from the IRS for 2009—not super aggressive letters, but letters indicating a balance due.
Their financial condition: She and her spouse earn about $100,000 a year of self-employment income. Their mortgage which has been in arrears was recently renegotiated to $3,800 a month (pretty steep looking at their income.)
What the companies say and the fees that they quote:
Door Number #1:Tax Resolution Services, Encino, CA; $6,500 fee
To quote their salesperson, "how does a $2,000 settlement on your $42,000 sound?" I'll answer that question for him: "impossible." The IRS is just not going to take a settlement on this case. Their $3,800 mortgage and the credit card they are servicing just are going to prevent an offer from being accepted on this case. Now if they really could pull this it off, maybe they could justify their exhorbitant fee.
UPDATE: Much to Tax Resolution Service's credit, management indicated to me that the above interview was the exception to the rule and if anyone had made such a claim without the proper caveat they would be reprimanded if not fired. Where do they Rank on the List of 150?
Door Number #2: Taxmasters, Houston, TX; $4,500 fee
COMPANY NOW CLOSED
Their salesperson gave case examples of their clients getting settlements ($5,000 on $45,000) while not exactly zeroing in on a solution to her case. Their fee was also extremely high but was moderated (we guess) by $1,500 down, $500 monthly payments for 7 months or something approximating that. Ouch. Their Ranking on the List of 150 Tax Res. Co's.
Door Number #3: Tax Defense Network, Florida; $3,500 fee
To their salesperson's credit, he took the Offer in Compromise OFF THE TABLE...saying the best they could do is work out a payment plan and later apply to get penalties off. Hard to justify that kind of fee, though. Ouch. Where do they Rank on the List of 150?
Door Number #4: Local tax attorney, Orange County; $1,500-$3,500 fee
This attorney, while not a big specialist in tax representation matters, did indicate that their high mortgage payment was way above Orange County's standard and would thereby complicate the success of an Offer/settlement. He would hash out the best solution he could for the above fee.
Door Number #5: Jay Freeborne, Enrolled Agent, WATAX; $1,200 fee
We made no huge promises, but to offer her representation a) keeping her out of the collection process, b) timing the contact the IRS so we don't connect with them any earlier than is necessary, and c) later (much later) applying to get penalties off once taxpayer has stopped owing money to the IRS. Certainly if this family turned out to qualify for an Offer in Compromise, you bet we're going to do it—and at one third the cost of the above companies!
In a nutshell, we told the client either a) Contact the IRS with some free advice from us or b) our staff and I would deal with the IRS giving her the peace of mind that it was done right.
Here's another interview comparison for another case.
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