Do Tax Relief Companies Really Work?

Tax relief companies claim to be a lifeline for taxpayers in distress. By charging upfront fees—sometimes amounting to thousands of dollars—they promise to apply for IRS hardship programs that could reduce or eliminate federal tax debts. Some even guarantee to halt back-tax collection. 

But do tax relief companies really work? According to the Federal Trade Commission, most taxpayers are unlikely to qualify for the programs that these companies advertise, and many may not even send your paperwork to the IRS.

Keep reading for an in-depth examination of tax relief companies, their services, costs, and potential drawbacks. 

How tax relief companies work

Understanding what tax relief is and how tax relief companies operate is crucial to assessing their real value.

Tax relief companies can:

• Negotiate settlements: Work with the IRS 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 anywhere from $250 to $7,500, depending on which services you use.

For some taxpayers, these services can help save money owed to the IRS. But the fees outweigh the benefits in other instances.

Tax relief companies’ typical fee structures:

• Flat fees: Some companies charge a one-time fee for their services.
• Percentage of savings: Others might take a percentage of the amount saved in negotiations.

Here are three scenarios that show how taxpayers might use tax relief companies:

Taxpayer	Taxes owed	Cost of tax relief company	Result	Saves money?
James	$12,000	$3,000	IRS agrees to reduce amount owed to $8,000	✔️ ($1,000)
Sarah	$10,000	$2,000	IRS agrees to reduce amount owed to $8,000	❌ (break-even)
Alan	$15,000	$2,500	IRS rejects offer and doesn’t reduce amount owed	❌ (costs an additional $2,500)

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, the Federal Trade Commission warns that most taxpayers are unlikely to qualify for advertised programs, emphasizing the importance of direct negotiation with the IRS or your state comptroller.

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 as a means of securing or satisfying 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 needed to effectively manage and resolve their tax issues with the IRS or other tax authorities.

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 can lead to more favorable outcomes.

• Potential savings

  By negotiating settlements and reducing penalties, tax relief companies may save you a considerable amount.

• 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 guide you in evaluating whether tax relief services are suitable for your situation. Always proceed with caution, and consider seeking direct help from the IRS or your state comptroller.

Does hiring a tax relief company make sense?

Ask yourself the following questions when determining whether a tax relief company makes sense for you:

• Do you need an expert? Understanding the complexities of an OIC can be challenging. Tax relief companies have professionals who specialize in these negotiations.
• 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.
• Are there viable alternatives? Some taxpayers may prefer to handle an OIC themselves or consult with a CPA or tax attorney. Resources such as the IRS’s Fresh Start program offer guidelines for those who wish to pursue this route.

An offer in compromise is a valuable option for some taxpayers, but it requires careful consideration and, often, professional guidance. Tax relief companies can provide assistance, but understanding the associated costs and evaluating alternatives is essential. 

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 necessitate 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 three ways tax relief companies differ from tax professionals:

	Tax relief companies	CPAs or tax attorneys
Expertise	General tax resolution	Specialize in taxes (financial implications and tax law)
Cost	Can be expensive (up to $7,500)	May offer tailored, cost-effective solutions
Transparency and Control	May lack personal relationship	More direct communication and control

DIY approaches

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

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.

Ask the expert

Erin Kinkade

CFP®

I would not recommend using a tax relief company and instead doing it yourself. Or if your situation is more complex, hire a CPA or tax attorney who specialize in tax relief. If you’re considering a tax relief company, red flags to watch out for include guarantees and unsolicited phone calls, texts, or emails.

How to choose the right tax relief company

If you decide hiring a tax relief company makes sense, don’t choose a company without doing your research. It can be a complex process, and you’ll want to make sure you pick 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, Better Business Bureau ratings, and asking for references. Be wary of red flags: Avoid companies that make unrealistic promises or charge full fees upfront.

Understand fees and contracts

Read all agreements and understand whether the fee structure is a flat fee or 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 individual situation, and we recommend consulting with tax professionals.

FAQ

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

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

Resources such as the IRS’s Low Income Taxpayer Clinic or the Taxpayer Advocate Service can assist you if you qualify for their services.

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?

Avoiding scams related to tax relief includes:

• Ignoring promises that you “qualify” for specific programs without a thorough review of your situation.
• Being cautious with companies that charge pricey monthly “maintenance fees” or full payment upfront.
• Consulting a tax professional for an unbiased opinion.
• Reporting any suspicious activities to the FTC.

Note: 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, serves as 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.