Tax resolution firms are a misnomer. They exact high fees from unassuming consumers and seldom resolve anything. These firms are a relatively recent development, and they are becoming a serious problem for consumers in our country.
Tax planning resolution scams advertise heavily, offering to settle Federal tax obligations for a fraction of the amount owed, even for “pennies on the dollar.” I have heard ads announcing a “special IRS program” to compromise tax balances, available for only a “limited time.” One firm claims to have saved “tens of thousands of taxpayers tens of millions of dollars.”
These ads are, of course, false. The IRS rarely accepts an offer in compromise. There are much better ways of securing relief from a threatened or actual levy (seizure) of a taxpayer’s wages or bank account. But the unsophisticated people targeted by the ads do not know this. Many taxpayers are facing IRS levy of their wages or bank account. A taxpayer who calls the tax resolution firm is connected with a high-pressure salesperson, and maybe with two of them. The taxpayer is assured that the firm will settle and resolve the taxpayer’s tax obligations. The salespeople earn commissions and large bonuses. Tax resolution firms take large retainers, typically $5,000-$10,000. The taxpayer somehow comes up with the retainer money. It is unlikely that an offer in compromise will even be submitted to IRS on the taxpayer’s behalf.
Employees of the tax resolution firm send the taxpayer form letters requesting information by artificial deadlines. When there is no response to the letters, the tax resolution firm does not bother to call the taxpayer. Instead the tax resolution firm deems the matter concluded and closes its file, the taxpayer realizing no relief. If the taxpayer requests a refund of fees paid to the tax resolution firm, the firm relentlessly refuses. All of this is pursuant to fine print in the retainer agreement which the tax resolution firm required the taxpayer to sign. That fine print also undoubtedly has language exculpating the tax resolution firm from liability to its client.
The taxpayer still owes his balance to the IRS. In fact the balance is now higher with additional accrued penalties and interest. And the taxpayer is out the fees paid to the tax resolution scam.
Not surprisingly, there is much litigation against tax resolution firms. J.K. Harris & Co., of Charleston, South Carolina is the largest such firm, with 325 local offices and $100 million in annual revenue. CPA John K. Harris founded the firm in 1997. The firm has been sued numerous times throughout the country. In 2007 it settled a class action brought in Charleston County, South Carolina Circuit Court for $6.2 million. In 2008 it settled a suit brought by the attorneys general of 18 states for $1.5 million.
Attorney Roni Deutch, of North Highlands, California, opened her tax resolution firm in her condo in 1991. Today it enjoys $25 million in annual revenue. Deutch advertises heavily on TV, especially in California, where she is known as “the Tax Lady or the lady in charge in accounting.” Deutch has been the object of much litigation. In 2007 she settled a suit brought by the New York City Department of Consumer Affairs agreeing to pay $200,000 restitution to consumers and $100,000 in fines to the City. On August 25, 2010, the California Attorney General sued Deutch in Sacramento County Superior Court seeking $33.9 million in restitution, civil penalties, and a permanent injunction. The pleadings and exhibits are eye-opening.