By: Elizabeth Gonsalves, Esq.
- Is it a Real Service or a Scam?
You’ve seen the ads on late night television, when you should be sleeping, but are instead up worrying. You’ve received the letters that look like official government issued notices of impending wage garnishment or bank levy telling you to call a private 800 number to address your matter with the IRS. You’ve heard the radio ads claiming they can take your tax liability and get it cut in half. These companies usually say they can relieve you of your tax debt claiming the existence of new programs offered by the IRS, and, of course, their company’s rare expertise. You’ve probably even had a conversation with a “specialist” or “consultant” about the particulars of your case. If you haven’t actually hired a tax resolution company yet, you probably wonder which story is true, the one about getting your tax debt cut in half or the one that is increasingly bubbling up about how they are all just a scam.
The truth is somewhere in between, like most things. There are scams and there are legitimate tax resolution companies that truly help their clients resolve their tax matter. Some very down-and-out people are able to enter into a settlement with the IRS whereby they pay a small fraction of the total tax they owe and are officially relieved of the remainder of their tax liability (with other conditions). This is a program offered by the IRS (and many states) called Offer in Compromise. The rules governing IRS Offer in Compromise are rigid and involve many restrictions associated with past behavior making them something rarely approved relative to the number of applications submitted each year. The amount you qualify for, if you are eligible for an Offer in Compromise, completely depends upon the specifics of your financial portfolio and your record with the IRS.
Offer eligibility cannot be determined by having a conversation with you for an hour over the phone. Anyone telling you that you qualify for an Offer in Compromise without first reviewing your financial documents is lying to you to earn the sale. People cling to the promise of an easy fix. Sometimes big problems do have simple solutions; however, over simplifying how a real solution is accomplished, suggesting for example, that a company can just “have your interest and penalties taken off” should cause an alarm to sound in your mind. If it has not been easy to fix on your own, it probably is not the type of problem that is fixed all that easily.
- There is More to Tax Resolution than Offer in Compromise
Of course, there are other programs offered by the IRS that can save taxpayers from aggressive payment plans taxpayers often cannot maintain over time. There are several benefits to hiring a professional to represent you before the IRS. The important thing to note is that you need to be absolutely certain you are working directly with a licensed or admitted professional whose first objective is to provide you with honest representation and ethical, albeit strategic, advice. “Consultants” and “specialists” should not be trusted, nor relied upon in developing your tax resolution goals. If you want credible information and sound advice about what is possible for resolving your case, insist on speaking directly with a licensed professional before hiring a tax resolution company and shelling over a fee.
SALES MODEL VERSUS LAW FIRM MODEL
- The Sales Team Model for Providing Tax Resolution Services
Most tax resolution companies that have a sales department employ non-practitioners to bring in clientele. The owners of these companies are interested primarily in the “money on the board,” not the quality of service provided. There is a “Los Angeles area tax resolution sales team” culture that typically treats making a sale like an addictive drug, “more, more, more” is the sole focus. The owners of these companies may or may not be licensed practitioners. What is certain is that the legal team hired are typically paid oppressively low, inundated with ever increasing piles of work, and are generally new to their field, lacking the where-with-all themselves, to know when they are being taken advantage of. Meanwhile, unlicensed sales people are the first point of contact with prospective clients and have sole discretion in bringing new clients aboard for services. This creates a “buggy leading the horse” approach to the provision of tax resolution services.
A hungry salesperson lacking knowledge about the law or federal collection rules and regulations should not be the person given discretion to take a new client, nor should they be the person to provide “legal advice.” Because the first person a prospective client talks to is a salesperson, clients are given unrealistic or impossible expectations in hiring professional assistance from the outset. Beware! Salespeople will speak to you as if they are the practitioner to be performing tax resolution services. Ask them directly, “Are you licensed or admitted to practice before the IRS?” If the consultant says “Yes” then ask for their license number and instructions for verifying their license with the state that issued it to them. If the consultant says “No” then tell yourself not to trust anything the consultant is saying and anticipate it is all wrong. Move on until you have contacted a tax resolution company that can put you on the phone with an actual licensed professional. When you contact a company using consultants, realize consultants are the culprits in this industry. You are being given erroneous information and are in danger of being given instructions to take action that will ultimately hurt your case, though it will create a need for new services.
Clients are also brought aboard by consultants when it may not be ethical or advisable to do so. Clients are charged fees having more to do with what the salesperson believes they can demand from you, rather than quoting a fee that reflects the professional’s time needed to resolve your case or the complexity involved in representing you effectively. How would they know? They have never worked an actual case in their life! They are thinking, “15% Commission!”
- The Law Firm Model for Providing Tax Resolution Services
A law firm model for doing business holds the licensed professional at the top of the chain of command, not the bottom. A licensed practitioner must talk to every prospective client first and dictates whether the client’s objectives are feasible and within the spectrum of services offered by the firm. The attorney, CPA or Enrolled Agent (those permitted to represent taxpayers) determines when to take on a new matter, not an unlicensed sales person. Further, while a client dictates their objectives in hiring representation, it is the licensed professional that dictates the means for pursuing such objectives, or for the best possible outcome given the client’s objectives, which may not be attainable. If a client’s objectives are not attainable, this should be clearly communicated to the client at the outset, not after fees have been paid and representation is hired. Further, if a client’s objectives are ill conceived or adverse to their own interests, a licensed professional should steer the representation to be compliant with the law while also accounting for their client’s best interests.
It is absolutely backward to employ a business model empowering sales people as the primary point of contact for prospective clients seeking to contract with an organization for tax resolution services. Sales people are not bound by fiduciary duties that are regulated by the state issuing professional licenses. They are not exposed to professional liability should they fail to meet their state mandated duties of confidentiality, advocacy, loyalty, and the like. They do not have to endure rigorous background checks, as a licensed professional must, to receive their license. In most cases, sales people have no respect for the commitment a licensed professional must make in exchange for the honor of carrying a license. Instead salespeople value the concept of “easy money” and treat the licensed professionals they depend upon for their hefty commission with condescension and mockery. Salespeople working for tax resolution companies also have no respect or compassion for the prospective clients that call in. They have been known to be callous and even rude using fear tactics and flippancy with prospective clients. Salespeople take advantage of taxpayers’ severe anxiety and compromised financial state to demand big bucks that have more to do with the size of their commission check than that of servicing the taxpayer.
- Why Sales Centric Tax Resolution Companies are Bound to Fail
Tax resolution has developed a bad reputation. The primary reason is because of the sales business model. Salespeople employed by these companies are often under-educated (relative to their licensed counter parts) and irresponsible individuals, and they are put in the position of calling the shots for resolution. While a sales department is a necessary part of many businesses, it does not belong in the legal field. It does not belong in the medical field either. You would not want to speak to a sales person when looking for medical advice, right? Tax resolution is an area of legal practice. While many scrutinize the industry given its poor reputation, one need only speak to someone facing a seizure of assets, or high tax assessments, or ongoing hardship to understand the significant stress caused by having to resolve a tax liability. Attorneys are hired for far less grave circumstances, and are paid significantly more for those services, in other areas of practice (think divorce, criminal defense, or civil litigation). The viability of hiring legal representation to act on your behalf when revenue officers are visiting your place of business or home, or issuing levies, should not be questioned. What should be questioned is why tax resolution companies utilizing a sales team are not the subject of stringent regulation in favor of the public’s interest in maintaining critical consumer protections.
- “More, More, More”
Sales person culture is fancy cars, fancy clothes, expensive dinners, and the “need to spend tens of thousands” for every birthday or holiday. Owners are known for making large withdrawals from operating accounts, the accounting departments struggle to reconcile bank accounts and account for operating expenses. Sales in tax resolution provides for uninformed greed, consumption and waste. Fees must be accounted for carefully, becoming operating income for a business only once earned. Persons without training in money management can easily misappropriate client funds without regard for the repercussions that would befall a licensed professional conducting their business in the same way. These non-fiduciaries collect large commissions on the fees for services they quote, without ever having to provide said services. They have no sense of the relationship between the fee charged relative to the labor that must be invested. When a person must work hard to earn their fee they have respect for the work they do and the money paid for that work. They have an inherent respect for their income and what it takes to earn it. Salespeople do not work for their money, they lie for their money and they do not care about you.
Sales centric tax resolution companies are bound to fail because the focus is on paying commissions to successful sales people rather than on compensating the professionals performing the services. The number of clients grows while the number of cases resolved slows. Money that should be invested back into the company to enhance services are instead used to fund other ventures or to pay for additional marketing in an effort to combat the growing complaints against the company. Many tax resolution companies engage in “creative corporate dissolution practices” whereby they close shop and cease operating as one business name to circumvent their terrible reputation. These companies often pop up using a new business name, leaving their desperate and undercapitalized clients holding the bag.
- The Law Firm Model is Sustainable
When good service is provided and the focus is on growing the quality of service while keeping overhead low, you have a sustainable business plan. Instead of wasting 15% of business income on liars and cheaters that bring in clients, but always do so on terms that lead to client dissatisfaction, you cut out an expensive component that undermines the business’s service. Instead, the investment should always be on acquiring more talented professionals capable of providing more needed quality service as a business grows. A tax resolution services business should be looking for ways to increase the breadth of service they provide, or honing their specialties. The tax resolution industry needs to put its money where its mouth is, and prioritize the power of word-of-mouth marketing.