How do tax relief companies work?

Tax season happens at the same time every year, with the Internal Revenue Service (IRS) accepting tax filings starting in late January and a standard deadline of April 15. But despite the continuity of this annual requirement, millions of taxpayers still find themselves either behind on their tax filings or their tax payments each year. These types of issues are less than ideal, though, as the IRS has a reputation for being relentless when it comes to collecting unpaid taxes, and the potential consequences can make the situation even more intimidating. 

Those hefty repercussions are a big part of why many people with tax issues will turn to tax relief services to better navigate the landscape and reduce their financial burden. These companies position themselves as experts in tax law and IRS procedures, offering to negotiate with tax authorities on your behalf. They claim to potentially reduce your tax debt, remove penalties, arrange manageable payment plans or even help you qualify for programs that can help settle your tax debt for less than the full amount owed.

But how exactly do tax relief companies work? Let's break it all down so you can make an informed decision about whether hiring a tax relief company is the right move for you.

Find out what tax relief help is available to you here.

How do tax relief companies work?

At their core, tax relief companies act as intermediaries between taxpayers and the IRS and typically follow a similar process when working with clients. That starts with a consultation to assess your tax situation and determine whether you're a good candidate for their services. During this initial meeting, they'll gather information about your tax debt, income, assets and other financial details.

If you decide to move forward, you'll sign a contract and will typically pay a retainer fee, which can range from a few hundred dollars to much more depending on the complexity of your case. Luckily, many companies structure their fees in installments, allowing you to pay over time as your case progresses.

Once you've signed the necessary paperwork and paid your fees, the company will request power of attorney to represent you before the IRS. This gives them legal authority to communicate with tax authorities on your behalf. They'll also ask you to provide various financial documents, including tax returns, notices from the IRS, bank statements and proof of income and expenses.

With this information in hand, tax relief professionals will analyze your situation and develop a strategy. Depending on your circumstances, they might recommend:

• An Offer in Compromise (OIC) to settle your tax debt for less than the full amount
• An installment agreement to pay your taxes over time
• Currently Not Collectible (CNC) status if you're facing financial hardship
• Innocent spouse relief if your tax debt stems from a spouse's actions
• Penalty abatement to remove or reduce penalties on your tax debt

The company will then prepare and file the necessary paperwork with the IRS or state tax agency. This process can take several months to complete, during which the company should keep you informed about the status of your case and any communications from tax authorities.

Chat with a tax relief specialist about your options today.

What else to know about working with a tax relief company

Before hiring a tax relief company, there are a few critical things to consider:

• The fees can be expensive: Most tax relief services don't come cheap. Some companies charge a flat fee, while others bill based on the complexity of your case, and the costs can range from a few hundred dollars to several thousand dollars. While this fee may be worth it if the company can significantly reduce your tax liability, it's an additional expense to consider when you're already facing financial challenges.
• The credentials can vary: Be sure to research any company thoroughly before hiring them. Look for credentials such as enrolled agents (EAs), certified public accountants (CPAs) or tax attorneys on staff, as these professionals have the training and authorization to represent taxpayers before the IRS. 
• Timing matters: Resolving tax issues takes time. Even legitimate tax relief companies can take months or longer to negotiate with the IRS, meaning you'll need to be patient throughout the process.
• You might have other options: If your tax debt is manageable, you may not need a tax relief company at all. The IRS offers installment agreements and penalty abatement options that you can apply for directly. However, working with a tax relief company could ultimately result in a better outcome, as these experts are well-versed in how to approach tax issues.

The bottom line

Tax relief companies can provide valuable assistance to those struggling with serious tax debt, but if you're considering hiring one, just be sure to do your research, check for accreditations and be skeptical of too-good-to-be-true promises. While a reputable tax relief company can help you navigate IRS negotiations, it's also possible to work directly with the IRS or hire an independent tax professional to guide you. Ultimately, understanding your options will help you make the best decision for your financial future.