Do Tax Relief Companies Really Work?

Tax debt can be overwhelming, but tax relief companies might offer a solution. These companies work with taxing authorities to help individuals resolve tax issues, potentially reducing the amount owed, minimizing penalties, and applying for hardship programs.

However, hiring a tax relief company comes with costs and risks. Fees can range widely, there’s no guarantee of success, and tax relief scams are common. It’s crucial to weigh the potential benefits against the expenses to determine if this option suits your financial situation.

How do tax relief companies work?

Tax relief companies work with taxing authorities on behalf of individuals to help them resolve tax issues. They can help resolve issues with federal debt owed to the IRS and might also be able to provide tax relief for amounts owed to state taxing authorities.

Tax relief companies can:

• Negotiate settlements: Work with taxing authorities to reduce your owed amount.
• Reduce penalties and interest: Minimize extra costs that accrue on unpaid taxes.
• Apply for hardship programs: Attempt to qualify you for IRS programs to lower or eliminate debt.

Based on our research, tax relief companies can cost between $250 and $7,500, depending on which services are used.

These tax relief services can help save money owed for taxes, interest, and penalties for some taxpayers. However, the fees might outweigh the benefits in other instances. 

Tax relief companies’ typical fee structures are commonly as follows:

• Flat fees: Some companies charge a one-time fee for their services. Do not agree to pay this upfront, as that’s not an acceptable practice.
• Percentage of savings: Others might take a percentage of the amount saved in negotiations. Before agreeing to it, take time to evaluate how much this might cost you. Again, don’t pay this fee upfront.

Are tax relief companies worth it?

The ideal candidate for tax relief services might be someone facing significant tax debt—many reputable tax relief companies require a minimum tax debt of $10,000—with a complex tax situation that requires professional intervention. However, determining whether a tax relief company is worth it for your specific situation requires careful consideration.

To start, evaluate your tax debt and financial situation. Tax relief services are often targeted toward individuals with significant tax debt and those with complex tax issues that they may not be able to handle on their own. If your tax situation is relatively straightforward, you might find it more cost-effective to negotiate directly with the IRS or work with a less expensive tax professional.

Next, understand the costs versus potential savings. Carefully weigh the fees that the tax relief company charges against the potential savings you might achieve. As the examples below illustrate, the cost of hiring a tax relief company can sometimes equal or even exceed the amount saved on your tax bill. Ensure you have a clear understanding of the company’s fee structure and the likelihood of your tax debt being reduced before committing.

When a tax relief company may not be worth it

Taxpayer #1	James
Amount of taxes owed	$12,000
Tax relief company fee	$4,000
Result	IRS agrees to reduce the amount owed to $8,000
Total cost (taxes plus tax relief company fee)	$12,000 ($8,000 in reduced taxes + $4,000 fee)
Savings	$0
Saves money?	No, costs the same

When a tax relief company is worth it

Taxpayer #2	Sarah
Amount of taxes owed	$12,000
Tax relief company fee	$3,000
Result	IRS agrees to reduce the amount owed to $8,000
Total cost (taxes plus tax relief company fee)	$11,000 $8,000 in reduced taxes + $3,000 fee
Savings	$1,000
Saves money?	Yes, saves $1,000

When a tax relief company isn’t worth it

Taxpayer #3	Alan
Amount of taxes owed	$12,000
Tax relief company fee	$2,000
Result	IRS doesn’t agree to reduce the amount owed
Total cost (taxes plus tax relief company fee)	$14,000 ($12,000 in taxes + $2,000 fee)
Savings	-$2,000
Saves money?	No, costs $2,000

It’s also crucial to research the company’s reputation. Look for customer reviews, Better Business Bureau ratings, and any history of complaints or legal issues. A company with a solid reputation and transparent practices is more likely to deliver on its promises.

Beware of guarantees. The Federal Trade Commission warns that many tax relief companies don’t provide the advertised services, and there’s no guarantee the taxing authority will agree to reduce your debt. Be skeptical of any company that guarantees it can reduce your tax debt or promises a specific outcome. Promises of guaranteed savings or results are often red flags.

Finally, consider the impact on your financial health. If your tax debt isn’t reduced, you’ll have wasted your time waiting for the tax relief company to help you. Plus, the fees you’ll need to pay the tax relief company might make your financial situation worse. It’s important to assess whether you can afford the risk of potentially not seeing the expected results. As such, it’s essential to use caution before deciding to use a tax relief company.

By carefully evaluating these factors, you can make a more informed decision about whether a tax relief company is the right choice for your specific tax situation.

What services do tax relief companies offer?

Tax relief companies offer a broad range of services to help taxpayers address and resolve their tax issues, reduce liabilities, and negotiate with tax authorities. These services include:

1. Negotiating offers in compromise (OIC): Assisting taxpayers in settling their tax debts for less than the full amount owed, suitable for those facing financial hardship or unable to pay the full liability.
2. Installment agreement assistance: Helping taxpayers arrange installment agreements with the IRS, allowing them to pay off their tax debt in smaller, more manageable monthly payments.
3. Penalty abatement: Working to get penalties reduced or removed for taxpayers who have failed to pay or file their taxes on time, provided there’s a reasonable explanation for their actions.
4. Innocent spouse relief: Assisting in obtaining relief for taxpayers who believe they should not be held responsible for the tax liabilities due to the actions or inactions of their spouse or former spouse.
5. Tax lien and levy release: Negotiating the release of tax liens and levies placed on a taxpayer’s property to secure or satisfy tax debt.
6. Back taxes help: Offering services to help taxpayers file unfiled tax returns, potentially reducing their tax liabilities and establishing a plan to manage the debt.
7. Audit defense: Providing representation and advice during IRS audits, helping to negotiate any settlements or payment plans that may result from the audit process.
8. Payroll tax negotiation: Negotiating on behalf of businesses with payroll tax issues to manage and resolve these taxes, which can be particularly complex.
9. Custom tax solutions: Providing tailored advice and solutions for unique tax situations to ensure taxpayers receive the most beneficial outcome based on their specific circumstances.

These services aim to provide taxpayers with the support and expertise to effectively manage and resolve their tax issues with the IRS or other tax authorities.

When does hiring a tax relief company make sense?

If you owe a relatively small amount of taxes, such as less than $10,000, it likely doesn’t make sense to hire a tax relief company, as the costs may outweigh the benefits. In general, you should only consider hiring a tax relief company if the benefits you’ll receive are worth the price you’ll pay. 

For some people, working with a tax relief company offers peace of mind. Even if the cost is high, knowing their situation is handled by a team of experts makes it worthwhile. Others are more cost-conscious and want to ensure they get more benefits than peace of mind. 

As you evaluate whether hiring a tax relief company makes sense, you may find it helpful to ask yourself the following questions:

• Is it worth the cost? Weigh the potential savings against the fees you’ll pay the tax relief company. In some cases, the costs might outweigh the benefits. Carefully evaluate the benefits to determine if the cost is worth it to you. 
• Do you need an expert? Understanding the complexities of an offer in compromise (OIC) can be challenging. Tax relief companies have professionals who specialize in these negotiations.
• Are there viable alternatives? Some taxpayers may prefer to handle their tax situation independently or consult a CPA or tax attorney. Resources such as the IRS’s Fresh Start program offer guidelines for those who wish to pursue this route.

Not only is each individual unique, but so is deciding when to work with a tax relief company. Keep in mind that there are many ways to address your tax debt. A good place to start is by talking to the taxing authority to see if you can handle the situation on your own. 

If you cannot reach a resolution on your own—or simply need the peace of mind afforded by working with an expert—you can evaluate other options. Besides using a tax relief company, other options include working with tax professionals, like CPAs or tax attorneys. 

While tax relief companies can provide assistance, it is essential to understand the costs and look into alternatives. Be sure to consult with a reputable professional to determine the best approach for your situation.

Alternatives to tax relief companies

Not all tax-related challenges require a tax relief company. Sometimes, more cost-effective options are available. Below are alternatives to consider:

CPA or tax attorney

Certified Public Accountants (CPAs) and tax attorneys can provide personalized advice and assistance. While still requiring payment, these professionals can offer services tailored to your specific situation, potentially saving you money compared to a tax relief company.

Working with an individual professional allows for a more transparent and personal relationship, giving you more insight and control over the process.

Here are several ways tax relief companies differ from tax professionals:

	Tax relief companies	CPAs or tax attorneys
General tax resolution	Yes	Yes
Complex tax resolution	Maybe	Yes
Credentials in tax law	Maybe	Yes
Custom solutions	Maybe	Yes
One-on-one support from an assigned expert or team	Maybe	Yes
Cost	Often expensive	May offered cost-effective solutions

DIY approaches

If you owe back taxes, you can research tax laws, read notices from the IRS or your state comptroller, and ask them about collection alternatives. You can also work out a payment plan with the IRS or your state comptroller.

Exploring these alternatives provides options beyond tax relief companies. If you’re unsure which path to take, consulting with professionals or resources such as the IRS’s Taxpayer Advocate Service may provide clarity.

If you’re considering a tax relief company, red flags to watch out for include guarantees and unsolicited phone calls, texts, or emails.

Erin Kinkade

CFP®

Pros and cons of tax relief companies

When considering tax relief companies, weighing the potential benefits and risks is essential. Below are the primary pros and cons that can help you make an informed decision:

Pros

• Professional expertise

  Having experts on your side can make navigating complex tax laws and negotiations with the IRS more manageable. Their experience in the field may lead to more favorable outcomes.

• Potential savings

  Tax relief companies may considerably save you by negotiating settlements and reducing penalties.

• Time and stress reduction

  Handling tax issues can be time-consuming and stressful. Tax relief companies can manage the process for you, offering peace of mind and freeing up your time.

Cons

• Costs can outweigh benefits

  Tax relief companies’ fees may exceed your savings, especially in cases with minimal tax debt.

• Potential scams

  Not all companies are legitimate. Some may charge upfront fees without providing the promised services, leaving you further in debt, as the Federal Trade Commission warns.

• Limited success in some cases 

  Even legitimate tax relief companies may not succeed in all scenarios. The qualifications for various IRS programs are strict, and not everyone will be eligible.

Understanding these pros and cons can help you evaluate whether tax relief services suit your situation. Always proceed cautiously, and consider seeking direct help from the IRS or your state comptroller.

How to choose the right tax relief company

If you decide to hire a tax relief company, do your research. It can be a complex process, and you’ll want to select a company that suits your specific situation. 

Our guide to the best tax relief companies can help you make an informed choice. Consider the following:

Research and reviews

Look for credibility by checking online reviews and Better Business Bureau ratings, and ask for references. 

Be wary of red flags: Avoid companies that make unrealistic promises or charge full fees upfront. Report any instances of fraud or potential tax relief scams to the Federal Trade Commission.  

Request a free consultation

Before you agree to do business with the company, ask for a free consultation. Reputable tax relief companies should be willing to listen to your situation and share an opinion about if and how your tax issues might be resolved. If the company isn’t willing to offer this service, move on.  

Understand fees and contracts

Read all agreements and understand whether the fee structure is a flat fee or a percentage of savings. Inquire about the company’s refund policy if it doesn’t deliver the promised service.

Consult with a tax professional

Before committing to a tax relief company, consider consulting with a CPA or tax attorney. A professional can help you understand the risks and benefits of using a tax relief company versus other alternatives.

Choosing a tax relief company is not a one-size-fits-all decision. Some may find it beneficial, but different solutions might better serve others. It requires careful consideration of your situation, and we recommend consulting with tax professionals.

FAQ

Can I negotiate my tax debts instead of using a tax relief company?

Yes, you can negotiate your tax debts yourself. It might be more time-consuming, but you can work with the IRS or your state comptroller to set up a payment plan or negotiate a settlement. 

If you qualify for services, resources such as the IRS’s Low Income Taxpayer Clinic or the Taxpayer Advocate Service can assist you.

How do I know whether a tax relief company is legitimate?

Determining a tax relief company’s legitimacy requires careful research. Look for:

• Online reviews and ratings from trusted sources.
• Better Business Bureau accreditation.
• Transparency in fee structure.
• A history of successful negotiations. Be skeptical of companies making unrealistic promises or asking for full payment upfront.

How can I avoid scams related to tax relief?

To avoid scams related to tax relief:

• Ignore promises that you “qualify” for specific programs without thoroughly reviewing your situation.
• Be cautious with companies that charge pricey monthly “maintenance fees” that could add up over time.
• Don’t agree to work with any tax relief company requesting full payment upfront, which is an unacceptable practice.
• Consult a tax professional, like a CPA or tax attorney, for an unbiased opinion.
• Report any suspicious activities to the FTC.

Example

A massive scam in India targeted thousands of Americans by posing as U.S. tax authorities. As reported by the U.S. Department of Justice in 2016, the perpetrators ran fake call centers, demanding unpaid taxes and extorting millions of dollars. 

The scam, which netted over $150,000 a day, is a stark reminder of the importance of vigilance and skepticism in dealing with unsolicited tax-related communications.

Can tax relief companies remove all my penalties and interest?

No, tax relief companies cannot guarantee the removal of all penalties and interest. Every taxpayer’s situation is unique, and only the IRS or your state can determine what, if anything, it will waive. 

Tax relief companies may negotiate reductions in penalties or interest, but it is essential to be cautious of any company promising to eliminate these costs. They cannot realistically make these promises, so you should be suspicious.