When it comes to resolving your tax debt, you have a number of possible routes you could take. In this article, I’ll go into some of the pros and cons of each option so that you have the information you need to make the best decision for yourself.
Do It Yourself Tax Resolution
Probably the route most people take, doing it yourself seems like the obvious or only choice for most people and small businesses. Tax resolution companies and independent tax professionals don’t want to hear this, but the reality is that most people can fix their tax problem without professional help. Simple tax debt problems that only cover a year or two, especially cases where the tax debt is under $10,000 (or under $25,000 if it’s only income taxes) are fairly easy to resolve with only a few phone calls (one phone call, in some cases).
If you can follow written instructions, are good with forms and paperwork, and have your personal financial paperwork in good order, then representing yourself is neither difficult nor time consuming. You need to be able to read and understand IRS notices and publications and forms, and keep good financial records for yourself.
Here’s a quick test: If you file your own tax return every year and have no problem doing so, then you can probably represent yourself. If you struggle with doing your tax return, even if you use step-by-step software, then you might want to consider getting help with the situation.
Let Your Tax Preparer Handle It
Most people don’t know this, but even if your tax preparer isn’t a licensed attorney, CPA, or Enrolled Agent, they can actually still represent you in most cases if they prepared the tax return from which the tax debt comes. If you trust your tax preparer to do this for you, chances are they can do it for much, much cheaper than a licensed tax practitioner, and will most likely obtain similar results for you. This is especially true, again, if the debt is under $25,000 and consists solely of income taxes.
Hire a Licensed Tax Professional
If your tax situation is complex, consists of multiple different types of taxes over multiple tax periods, involves any sort of business taxes, or exceeds $25,000, you MIGHT want to take hiring professional licensed representation into consideration.
I want to stress the word licensed. In my article about 5 Reasons To Use Professional Representation To Resolve Your IRS Tax Debt I gave some warnings about some companies that only do tax resolution work. You want to make sure that the person doing the actual WORK is licensed. Some of the less reputable companies in this industry have assistants do all the work, and a licensed person is just there to sign the Power of Attorney (POA). Some of these POA signers literally have THOUSANDS of POA’s that they are signed onto at any one time. Don’t for a second think that they even know who you are. Always ask to speak to an actual licensed person before signing up with one of these companies — don’t just talk to a sales guy. If the sales guy refuses to let you speak with a licensed person, then run away — very, very quickly!
There are, in general, three kinds of licensed tax professionals that can legally assist you: a CPA, attorney, or Enrolled Agent.
While a license to practice means one thing, obtaining competent representation from a licensed practitioner is another. CPA’s are licensed by the state in which they practice, and most CPA’s are NOT experienced with tax resolution work. The vast majority of CPA’s do just accounting or just tax preparation. The same thing actually goes for Enrolled Agents, who are licensed directly by the IRS to represent taxpayers. Less than 2% of all Enrolled Agents have any experience at all doing tax resolution work. It should also be noted that the CPA personality stereotype is mostly true — fairly timid number crunching geeks. When it comes down to pure negotiation skills, most EAs and CPAs just don’t have the personality to hold ground against an IRS officer.
Attorneys, while often much more skilled at and experienced in the world of negotiation, usually don’t have much in the way of accounting skills, and may have a hard time with numbers in general. It should also be noted that you want an attorney that specializes in tax law, not just a garden variety lawyer.
Personally, I believe that you should ONLY hire a CPA, EA, or tax attorney that is heavily experienced in tax resolution work. In fact, I may be so bold as to suggest working with a licensed tax professional that ONLY does tax resolution work, and doesn’t do seasonal tax preparation at all, doesn’t run a payroll service, etc. Most large metropolitan areas of the United States will have several local professionals that specialize just in this type of work. In addition, there are dozens of nationwide firms that offer these services, and it’s ALL they do.
As with anything involving your finances, always do your homework on any practitioner or firm before hiring them. Get comparison quotes, and make sure you know what services you are being quoted for so that you can compare apples with apples. Check out BBB reports, and do Google searches using the name of the company combined with phrases such as “scam”, “rip off”, and “complaints”.
I hope this article will help you in selecting the best option for resolving your tax debt situation. In future articles on this blog, I’m going to focus on the “do it yourself” side of things, and show you how to do things on your own, or at least provide you with information to understand what your tax practitioner is doing or is quoting to you.