Navigating IRS Collections: A Cautionary Tale

The world of tax resolution can be difficult to navigate. Many taxpayers seeking relief from IRS debts fall victim to unscrupulous firms. These companies often promise the moon but deliver little—or nothing at all. Recently, I spoke with a taxpayer in distress. His story sounded all too familiar.

He had turned to a nationwide resolution firm for help with his past-due tax debts. The company promised to settle his debts for “pennies on the dollar.” But they failed to deliver even the basics. They hadn’t gathered any financial information to calculate the Reasonable Collection Potential (RCP). This is a critical step in preparing an Offer in Compromise (OIC).

Any offer sent to the IRS without an RCP calculation is just a guess. It could be far higher than necessary, worsening the taxpayer’s financial situation. Or, it could be so low that the IRS rejects it outright. In either case, the taxpayer is left in a worse position and has wasted time and money.

To make matters worse, many taxpayers are misled by ads for the IRS Fresh Start Program. These ads suggest it’s a special or new offering. The truth is, the program ended over a decade ago. Its features—like flexible installment agreements and expanded Offer in Compromise rules—are now standard IRS processes. These ads prey on taxpayers’ hopes for quick fixes but offer little real help.

This reminded me of Roni Lynn Deutch, the so-called “Tax Lady.” Her resolution firm promised to settle debts for a fraction of what taxpayers owed. However, investigations revealed deceptive practices. In 2010, the California Attorney General sued her for $34 million, alleging she defrauded thousands of clients. Her business collapsed, leaving taxpayers worse off than before.

These stories highlight the need to choose tax professionals carefully. Working with someone who understands IRS processes is essential. A thorough financial analysis is the cornerstone of any effective IRS resolution strategy. A reputable tax professional will guide you through this process and set realistic expectations.

For taxpayers in trouble, quick fixes can be tempting. But as my recent caller and the victims of the Tax Lady learned, shortcuts often lead to dead ends. If you’re facing IRS debts, do your research. Seek qualified help, and remember—if it sounds too good to be true, it probably is.

 

Author: Jim Payne

Jim Payne, a Florida Certified Public Accountant (CPA) since 1976, offers candid insights on getting square with the IRS — with the least pain, and at the lowest cost — with (or without) the help of a tax representative. Mr. Payne is a former IRS agent and expert in business profitability, IRS audits, IRS payroll tax, and IRS non-filer issues. As a Tax Representative, his goal is clear: " I will speak on your behalf to all IRS agents, so you never have to, and I'll guide you in executing a strategy to resolve your IRS problem so you can get back to enjoying life."

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