How to Choose a Tax Relief Company (and Avoid Scams)

Not always. If you owe $50,000 or less and have filed every return, you can apply online for a Simple Payment Plan in minutes for a $29 setup fee. First-time penalty abatement can often be requested with a phone call. Professional help adds the most value when you owe more, have many unfiled years, owe payroll taxes, face active levies, or want to pursue an Offer in Compromise, where preparation quality matters.

Only three kinds of professionals have unlimited representation rights: enrolled agents (licensed by the IRS), certified public accountants (licensed by states) and attorneys (licensed by state bars). Ask which of these will work on your case and verify them — the IRS Directory of Federal Tax Return Preparers, your state board of accountancy, or your state bar website. A company's salespeople are often not the people who do the work.

• Promising to settle for "pennies on the dollar" or guaranteeing an Offer in Compromise before reviewing your income, expenses and assets.
• Large upfront fees before any investigation.
• Pressure to sign today or claims a program ends soon.
• Telling you to stop communicating with the IRS without explaining a plan.
• Vague answers about who's licensed.

The Federal Trade Commission and state attorneys general have taken action against tax relief companies for exactly these practices.

Fee structures vary. Some charge a flat fee for an investigation phase (pulling transcripts, reviewing finances) and a second flat fee for resolution; others bill hourly. Costs commonly range from a few hundred dollars for a simple payment plan to several thousand for an Offer in Compromise or complex payroll case. Get the fee, what it covers, and the refund policy in writing before paying. Compare that cost against what you'd save — for many installment agreements, the professional fee exceeds any benefit.

1. Who exactly will handle my case, and what are their credentials?
2. What will you do in the first 30 days?
3. Which program do you think fits, and why — based on my actual numbers?
4. What is the total fee, and when is it due?
5. What happens if the IRS rejects the proposal?
6. Will you file Form 2848 so I can see you're my representative?
7. Will you file my missing returns, or is that extra?

A reputable firm asks for permission to pull your IRS transcripts, reviews your income and expenses, and tells you which program fits — even if the answer is a simple payment plan you could set up yourself. It explains the IRS's own costs (such as the $205 offer application fee and the 20% lump-sum payment) separately from its fee. It doesn't quote a settlement percentage before seeing your numbers.

Low Income Taxpayer Clinics represent eligible taxpayers for free or a small fee. The Taxpayer Advocate Service helps when IRS problems cause financial hardship. IRS Taxpayer Assistance Centers help in person by appointment. And the IRS's own Offer in Compromise pre-qualifier is free to use.

When you know where you stand, the next step is choosing a resolution. Our tax settlement calculator asks 8 questions about your balance, income and situation and shows which IRS programs — payment plan, Offer in Compromise, Currently Not Collectible or penalty abatement — your answers point toward. It's free and doesn't affect your credit.