How tax debt relief "mills" scam people who owe money to the IRS: Internet Scambusters #1,009
Maybe you've never heard of the IRS tax debt relief program called Offer in Compromise (OIC). But scammers certainly have.
They claim they can use it to have the IRS slash your tax debt to "pennies on the dollar" but they want you to pay upfront for their so-called service, which more than likely won't save you a dime.
In this week's issue, we'll explain how OIC works, what it costs, what the scammers charge, and how to go about making a claim yourself.
Let's get started…
Tax Debt Relief Scammers Charge $25,000 - For Nothing!
People struggling with tax debt are being duped into misleading claims about settling their tax debts for "pennies on the dollar."
As the regular tax season closes, thousands of Americans are handing over a small fortune in fees to firms claiming they can negotiate debt forgiveness with the IRS.
The IRS does operate a program called Offer in Compromise (OIC), which enables taxpayers to request a debt write-down, but the rules are strict, calling for evidence of inability to pay.
However, many struggling payers, either unaware of the program or feeling they can improve their chances of success by using "experts," are turning to large-scale scam operations dubbed "OIC mills."
The firms often charge fees running to as much as $25,000 to supposedly help with debt forgiveness claims. In most cases, they may simply complete and submit an OIC application form. Other times, they just run off with the money.
The result is that victims often end up in a worse financial situation -- out both the fees they handed over plus potentially worsening debt problems with the IRS.
The scammers promote their "get-out-of-debt" scheme online, in TV and radio ads and through precisely targeted mailshots. If they actually submit an application, they may not even be breaking the law -- just charging over the odds for a service that most people could do themselves.
Expert David Strausfeld, a senior editor for Tax Adviser newsletter, describes these firms as "predatory" -- using "increasingly sophisticated methods" to prey on the ignorance of taxpayers by making claims they simply can't deliver on.
The situation has become so acute that, in the past couple of years, the IRS has included OIC scams in its annual list of the worst tax payment tricks -- its "dirty dozen."
"While many tax debt resolution businesses are legitimate, others cross ethical boundaries, harming vulnerable taxpayers and spreading unrealistic expectations about settling tax debt for less than the face amount owed," says Strausfeld.
Things have gotten worse during the pandemic according to experts. About 54,000 OICs are filed each year but only a third of these are accepted. Set against the number of taxpayers in the country, that's a tiny proportion of debt write-downs.
"Many OIC mills use sophisticated marketing techniques such as monitoring public records for tax lien information and then mailing the affected taxpayers misleading letters that warn of drastic consequences if the person fails to contact an '800' phone number," Strausfeld reports.
"Some of the solicitation letters mislead recipients by uncannily resembling official IRS notices."
There are some regulations in place that forbid tax debt specialists making "false, fraudulent, coercive, misleading, or deceptive statements or claims," but that doesn't stop unscrupulous firms, plus the IRS doesn't have enough resources to enforce them.
OIC mills are also subject to individual state ethical and consumer protection regulations.
How to Apply for Tax Debt Relief
So, what can you do if you have a tax debt problem?
First, don't respond to those solicitations with pledges about how much you can save. If you think you need professional guidance, speak to a trusted financial adviser.
But in the first instance, you can check whether you might qualify for debt relief by completing an online questionnaire.
This checks things like whether you've filed all current tax returns and if you're up to date with estimated payments (if you have to make them). It also asks questions about current debt, income and so on. The aim is to eliminate applications that simply would not qualify.
There's no charge for this, but taxpayers who do prequalify have to pay a $205 application fee directly to the IRS, although this can be overridden for very low-income taxpayers. If an application is rejected, the fee is unlikely to be refunded but at least that's the extent of your financial exposure.
If the IRS thinks you can afford to pay your tax debt, it may suggest an installment payment program. Again, you can agree to this directly with the IRS. No need to pay someone else to do this unless you think you can't do it yourself. Even then, make sure you know what a professional will charge you before you go ahead.
You can also improve your knowledge and understanding of OICs and the application process in a series of videos -- some from the IRS themselves.
Remember, though, that some of the tax debt videos may have been produced by OIC scammers! Best to look for those listed as "IRSvideos."
You can also download (PDF) the IRS guide to applicants, complete with all required forms.
This should ensure that if you do have a tax debt, you won't fall victim to the greedy scammers.
This Week's Scam Alerts
Crypto Millions: In a new study, the Better Business Bureau said it received 2,465 complaints about cryptocurrency scams in 2021, with losses totaling more than $7 million. But this is the tip of an iceberg. The Federal Trade Commission (FTC) said crypto losses last year cost more than $750 million.
Self-Texts: Some cell phone users are being warned about a mystery text that seems to come from their own number. The message says the current month's bill has been paid and you can get a thank-you gift by clicking a link. Give yourself a gift by all means, but not by clicking this link, which undoubtedly will lead to trouble.
That's all for today -- we'll see you next week.