Within the tax resolution industry, there are a variety of fee models that you should be aware of. Different fee models have different possibilities for abuse by the company offering the services, and it is important to do your due diligence and fully understand what you are paying, how much and when, before paying a single penny to a resolution company. taxes. .

One of the most common fee models is a withholding model, which is a holdover from the world of CPA and law firms that many tax professionals come from. Under this model, you pay an amount up front, which the company withholds, and then invoices by the hour. Near the time the advance is used up, you will receive (or actually SHOULD) receive an invoice showing what was done, how long it took, and the hourly rate at which it was invoiced. This invoice will generally also include a request for an additional advance. The key to remember here is that if you don’t keep paying, they won’t keep working.

If you’ve been researching particular companies online, you may have already come across BBB, forums, Attorney General, and other complaints against some firms aggressively billing retainers and constantly asking their clients for more money, without making significant progress. . we have the client’s actual tax case. It is important that you thoroughly research a company before giving them money, to avoid being another victim of a crooked company.

Another common fee model is a flat fee per service model. This pricing model has a large number of variations, from a flat fee for a specific package of quoted services, to a “service menu” model where each service you can order from the menu has a specific rate. The latter method is very similar to the more common pricing model used in tax return preparation, where each specific tax form has a particular fee to prepare it. You will see that this pricing model is used by almost any CPA company or retail tax preparation team (including Jackson Hewitt, H&R Block, etc.).

When talking to a seller about a service package, it is very, very important that you understand exactly what services you are being quoted for and what the company’s policy is regarding fees for additional services. When it comes to tax matters, it is not uncommon for additional services to be required, which will require additional fees if they are not covered in the quote you are already working on. Ideally, the salesperson you speak to will have done a thorough analysis of your situation and included everything in the proposal they send you.

When comparing proposals between various companies, keep in mind that you are probably not comparing apples and apples, but apples and oranges. Here are some things to keep in mind when comparing proposals between companies competing for your business:

• Is any tax return preparation included in the quote?
• Does the fee include all the appeals needed to handle your case?
• For business owners, is representation of penalties for recovery of trust funds included?
• How many quarters or years of tax problems are covered by the rate quote?
• Is a request for a reduction of the fine included or is it additional?
• What specific resolution option does the fee cover and what happens if the resolution strategy changes?

This last question is particularly important. There are some tax resolution firms that will try to sell everybody an Offer in Compromise, because they charge a higher rate for this service. However, it is critical that everyone understands that most individuals and small businesses DO NOT QUALIFY for an Offer in Compromise. In fact, the IRS accepts less than 20% of all offers that are submitted, and the only reason this number is so low is because of the large number of ineligible offers that are submitted in the first place. It is also important to understand that the average processing time for an Offer in Compromise exceeds 10 months.

What does this mean for your rate? Well, a reputable company will conduct a thorough financial analysis and tell you whether or not you are a candidate for the Offer. If not, they will negotiate another resolution option for you at the same rate. If a company tells you that it will charge an additional fee for negotiating an Installment Agreement (monthly payment plan) after you have already paid a higher fee for an Offer in Compromise, then you should seriously question this.

You should also be wary of the company that tells you that yes, it is a candidate for the Offer, even when it owns assets that exceed its tax liability. Simply put, if you have assets that exceed your tax debt, the IRS Never accept your offer. There is an incredibly rare exception to this rule, but it is so rare that it only happens once or twice a year (literally). This exception is called the “Effective Tax Administration” rule, and if a company tells you that you can qualify under this rule, then they are likely directly lying to you. You practically have to be on your deathbed to qualify for this exception.

Another important thing to consider when talking about fees is the question of which is an adequate fee and which is too much. The cost of a service obviously varies by geographic location, but in general, fees for tax resolution services across the country fall on a line of what is appropriate and what is not. Here are some examples of what would be considered standard rate ranges for certain services:

• Negotiation of an IRS installment agreement, penalty reduction and all appeals on a personal income tax debt of $ 40,000: $ 2,500
• Same as above, but with a business employment tax debt of $ 200,000: $ 5,000 to $ 7,000
• Trust fund recovery penalty representation: $ 1,000 to $ 2,500, depending on the nature of the case
• Preparation of a basic personal income tax return, married filing a joint return, a house, two jobs, a couple of children: $ 300- $ 500
• Prepare a small corporate income tax return with less than $ 250,000 per year in income and no significant assets: $ 500- $ 800
• Preparation of a more advanced corporate tax return with multiple shareholders, assets, high income, etc .: $ 1,200- $ 2,500
• Negotiating an offer in compromise on a personal tax debt of $ 150,000: $ 3,500 to $ 5,000
• Negotiating the release of a wage garnishment and nothing else: $ 400 to $ 1,000

These are just examples of the types of fees you may see when it comes to solving tax problems. There are numerous factors that go into the proper quote for a tax resolution fee, but when comparing proposals, these numbers can give you a good idea of ​​what is considered reasonable.