What Is a Tax Relief Company?

Whether it’s because they didn’t file a return, didn’t have enough money or underpaid an estimated tax payment, millions of Americans wind up owing the IRS. The consequences for failing to meet your tax obligations can range from late fees and collection notices to wage garnishment and property liens.

If you owe the IRS, there are payment plans and financial hardship programs that can help. But trying to gather bank statements, review tax transcripts and fill out forms can be time-consuming, confusing and stressful.

Just sitting down with the IRS makes some people break out in a cold sweat.

A tax relief company can serve as your intermediary — assessing the situation, gathering paperwork, laying out the options and making sure you’re in compliance before negotiating with the IRS on your behalf. 

The IRS offers installment plans, penalty abatement, partial forgiveness and other forms of assistance to taxpayers who are in arrears. You can pursue these options on your own or work with a qualified CPA or tax attorney.

But there are also firms that specialize in helping taxpayers resolve tax issues. A reputable tax relief company will typically offer a free consultation, during which they’ll ask questions about your situation and outline possible solutions. 

If you enroll, the company will review your records and make more detailed recommendations. Many also prepare unfiled returns to bring you into compliance and represent you in disputing IRS penalties, audits or collection actions.

“The main service they offer is access,” said George Dimov, a New York-based CPA and founder of Dimov Tax Specialists. “You sign a Form 2848, which gives them the power to get your tax records and negotiate with the IRS for you. That’s what you’re paying them for.”

What a tax relief company can do:

• Review your tax transcripts
• Prepare and file missing returns
• Act as your representative in administrative dealings with the IRS
• Submit requests for payment plans, Offers in Compromise and other relief programs
• Help pause aggressive collection actions
• Appeal IRS decisions

What a tax relief company can’t do:

• Automatically eliminate your tax debt
• Guarantee results
• Act as your legal representative 
• Overturn IRS decisions

A reputable tax relief firm will explain its process before asking you to sign or pay anything.  

Step One: Free consultation
Your first interaction should be a no-cost consultation with a sales representative or case specialist. They’ll ask about your tax situation and confirm that you meet the firm’s minimum debt requirement (usually $5,000 to $10,000). This is primarily a fact-finding call, so the more documentation you can provide, the better.

Helpful items include:

• Your most recent filed tax returns
• Bank statements
• Pay stubs
• Other financial documents
• Any letters or notices from the IRS

By the end of the call, you should have a general overview of your relief options and a price quote for their services.

If you enroll, you’ll sign a Form 2848, which allows the company to pull your tax transcript and speak with the IRS on your behalf. You’ll also provide a retainer, which can range from a few hundred to several thousand dollars.

Step Three: Investigation phase
The next step is the investigation phase (or discovery phase), during which the company will review your IRS transcripts and finances and present you with more concrete next steps. 

The options may include:

• An IRS installment agreement: Depending on how much you owe, you’ll be given a set amount of time to clear your balance, during which collections will be paused and the failure-to-pay penalty will be reduced from 0.5 to 0.25%.
• An Offer in Compromise (OIC): If accepted, this agreement allows you to pay less than the full amount owed. You’ll need to prove serious financial hardship based on your income, expenses and assets. Only about a 20% to 30% of OICs are approved.
• Currently Not Collectible (CNC) status: If you are in serious financial straits, you can also request that active collections be paused (although interest and penalties continue to accrue). 

• Penalty abatement: If you can show you didn’t comply because of circumstances beyond your control (like a natural disaster or a death in the family), the IRS may be willing to reduce or waive late-filing or late-payment penalties. It doesn’t eliminate the underlying tax you owe, however.
• Innocent spouse relief: If you filed a joint return, penalties stemming from errors made by your spouse (or ex-spouse) may be waived. You’ll need to provide detailed documentation to be approved.

A tax relief company may also help you submit any previous returns and dispute or correct errors. The IRS is more likely to approve a request if you’re in compliance, so this is an important part of the process.

Step Four: Resolution

Based on the results of its investigation, the company will negotiate with the IRS to reduce your tax debt or penalties. They may also be able to pause wage garnishments, levies, and other collection actions while the agreement is finalized.

The IRS can approve or deny the request, or make a counteroffer. If you’re approved, you’re responsible for meeting the terms of your agreement and your work with the tax relief company is essentially concluded.

If you’re denied, the tax relief company may be able to help you appeal the decision.  

Pricing for tax relief services varies depending on the amount you owe, the complexity of your situation, the resolution option you pursue and whether you work with an enrolled agent, CPA or tax attorney. 

While there are different fee structures, most companies charge a flat rate for the initial investigation phase, during which they’ll review your IRS records and financial situation to decide which services you’re eligible for.

The cost of the resolution phase, when the company negotiates with the IRS on your behalf, can also be a flat fee or a percentage of your total tax debt (typically 10% to 15%). Often, the final amount depends on the relief option. According to Lend EDU, a penalty abatement can cost as little as $250, while an Offer in Compromise can run as much as $7,500.

There may also be additional fees for obtaining transcripts, filing returns, appealing an IRS decision and other services.

• Avoids stress. If you’re anxious about working directly with the IRS, they can handle all communications and help pause collections. 
• Offers professional expertise. Trained representatives can guide you through complex tax rules, lay out relief programs you qualify for and ensure you submit the proper documents.
• Saves time. You won’t have to gather transcripts, research relief options or complete paperwork.
• Saves money. If the IRS approves an Offer in Compromise, you could see your tax debt reduced by more than enough to offset the fees. 

• It can be expensive. Tax relief companies charge high fees, which you’ll have to pay whether or not the IRS approves your request.
• There’s no guarantee of success. Despite aggressive marketing claims, there’s no guarantee you’ll get your tax debt reduced.  
• You can do it yourself. Most clients end up enrolling in payment plans, which is fairly easy to do on the IRS website.
• Scams are prevalent. Some companies use high-pressure sales tactics or promise results they can’t deliver. According to the Federal Trade Commission, scam artists pose as “tax resolution services” to steal money or personal information. They may try to scare callers with threats of jail time or foreclosure.

As with any financial decision, shop around and do research first. before you make your choice. Here are some things to consider:

• Only use firms that employ or partner with licensed tax attorneys, CPAs or enrolled agents. You can verify their credentials through the IRS website or state bar associations.
• Read customer reviews and check for any regulatory judgments.  
• Request a free consultation and get a clear explanation of pricing 
• Avoid companies that require money up front, guarantee results, make unrealistic claims or contact you unsolicited. 

Tax relief companies can be helpful if your situation is complicated enough that you don’t think you can handle it on your own. But Dimov cautions consumers to be realistic about the results

“The problem with their marketing is that they focus on making a deal with the IRS,” he told CNBC Select. “They tell you it is like paying ‘pennies on the dollar.'”

In reality, he added, the IRS only accepts a small number of Offers in Compromise. (Only 21% were approved in 2024.)

“Many clients pay $3,000 to $5,000 expecting a deal,” Dimov said. “They end up with a payment plan they could have set up themselves. The service is real [but] the price is often not worth what you get.”

A tax relief company might be worth it if:

• You owe at least $10,000
• You have multiple years of unfiled returns 
• You want to stop aggressive collections, like wage garnishment or a tax lien.
• You’re uncomfortable dealing with the IRS directly

A tax relief company probably isn’t worth it if:

• You owe less than $3,000
• You only have one or two years of back returns
• Your tax situation is very straightforward
• You’re comfortable handling the issue yourself

There are other places to get tax help that may be a better fit, depending on your issue:

• Work directly with the IRS: If your situation is straightforward, applying for an installment plan or submitting an OIC yourself is cheaper and faster than using a tax relief company. However, you’ll be in the driver’s seat when it comes to meeting all the requirements and deadlines. 
• Use a CPA or enrolled agent: These professionals may bill hourly or charge a flat fee that’s more affordable than a tax relief plan.
• Hire a tax attorney: If there are legal issues — a subpoena, audit escalation or criminal tax charges — a tax attorney can offer legal advice, provide attorney-client privilege and represent you in court.
• Contact the Taxpayer Advocate Service (TAS): The Taxpayer Advocate Service is an independent organization within the IRS that offers free help to taxpayers facing financial hardship, complex tax issues or administrative errors 
• Visit a Low-Income Taxpayer Clinic (LITC): If you meet income requirements, LITCs offer free (or low-cost) help with collections, audits and appeals. Search the IRS LITC Directory for a clinic near you. 

If you’re overwhelmed by serious tax debt, a tax relief company can help you understand your options, communicate with the IRS on your behalf and ensure the necessary forms have been filed. But they can’t magically reduce or eliminate your tax debt — and they don’t have any tools that you can’t utilize yourself.   

If you’re considering working with a tax relief company, make sure they’re offering solutions you can actually qualify for.  Be sure to verify their credentials, compare costs, and find out what other clients have said about them.

Your free consultation is a great time to decide if the potential financial benefits are worth the cost.

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