His tax problem: Taxpayer owed the IRS $50,000.00. He had already provided the IRS a full financial statement (433F). The IRS had come back to him with a letter saying he had the ability to pay them $2650.00 a month. This taxpayer did have a decent family income $150,000 a year and had used his good income for private school tuition for his kids. The taxpayer also owed the State of California and was in a small payment plan with them.
Honest analysis of his tax problem: For the reason that "private school tuition" is NOT considered an allowable expense by the IRS -- we are skeptical about the client getting an Offer in Compromise with his high income. In fact - we can tell you it WON'T happen. Furthermore, the IRS has already seen his ability to pay $2650 a month!. Finally, this client had clearly done a lot of work on his case by providing a financial statement to the IRS. So this was NOT a case that would require a great deal of effort for whatever tax professional took it on.
What can be done: we thought because the client owed less than $50,000 - that we could ask for the IRS for a streamline installment agreement as the debt was near/below $50,000 - this could be a payment agreement for about $700.00. If that didn't work we thought we could do a 12 month adjustable agreement - where the client paid a small amount for a year $500.00 and then agree to a larger increase - a year from now (that could probably be renegotiated later). Could penalties come off? Well this client was probably going to owe taxes in 2013 -so - this client would have to postpone a request for a penalty abatement until 2015 when the taxpayer had demonstrated that he wasn't going to owe new taxes anymore.
WATAX's fee and solution: $575.00 fee -- Because the client had already dealt with the IRS extensively on this case and because the best that we could do was "recalibrate" his payment plan. we told him we would do so - and try to get the payments to start a few months from now. Down the road we told him we would see if he qualified for an Offer in Compromise -- later on -- and then as the client would owe for 2013 - help him re-tweak his arrangement with the IRS at that time (that might require an extra fee $). We also told him we would discuss penalty abatement at another time but probably no sooner than 2015.
Here's what the 5 other companies said they could do for him and what they would charge.
Insight Financial of Florida: $2950 fee Insight Financial and one of their telemarketers called them as a tax lien had been filed against them. They told the client that the should be able to get the penalties removed and get their payment plan down to "close to nothing" and maybe do an Offer in Compromise. We don't see any overpromises here BUT that fee might be something that the client regrets - as an OIC is off the table.
BBC Tax, Colorado -- $2300 fee BBC Tax is a new company -- that cold calls people with tax liens. We had not heard about them until today. (I called the company - The "BBC" in their name does NOT stand for anything.} This firm didn't overpromise. But they said they would try a penalty abatement and/or Offer in Compromise. Again -- as an OIC is pretty much not happening, I think the client might regret paying anyone over a $1000 fee.
The Tax Defenders, Chicago -- $4400 fee - These folks sent him a mailing from a tax lien list. They said that they can do an Offer in Compromise or a penalty abatement, and represent him with the Power of Attorney. Still buyer's remorse big possibility.
2020 Financial - Colorado -- $2950 fee -- These folks ALSO sent him a tax lien mailing. Again, they made no overpromises - they would look in to doing an Offer in Compromise or a penalty abatement while representing him with the Power of Attorney. Too high a price in our opinion.
Direct Tax Relief, LA, CA - $5000 fee -- He found them on the web. He felt that Direct Tax did the most thorough interview - as they also asked about his small State problem and anticipated him owing taxes again for 2013. Still - way too high a price for what is likely going to be an IRS payment plan with no Offer or penalty abatement.
On one hand, I can respect that all five of these companies were "broad" in their options for the taxpayer. HOWEVER -- this guy had already done an in-depth back and forth with the IRS AND they told him that they see a $2650 payment plan for him. Don't you think you should get specific about what you can do - considering the IRS just did?
Let's summarize this guy's case:
Offer in Compromise is not happening -- High private school tuition is NOT going to be allowed in calculating his Offer. Furthermore, he just doesn't owe enough money to qualify for an Offer with his high income. If he owed a couple hundred thousand - well maybe. How can you qualify for an Offer? Click: HERE
Penalty abatement is NOT happening NOW. Client keeps owing the IRS every year. Until he stops doing this -- it is NOT going to work.
Creative payment plans can be HELPFUL. There are other options that a $2650 payment plan for a debt of $50,000 - the Streamline of $700 a month and a 12 month adjustable where client pays more a year from now. This can be helpful to the client.
Bottomline: We think all five companies would disappoint the client - particularly - because of their fee and unlikeliness of reducing the tax debt.