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If you owe taxes, beware of debt-aid firms

Millions of Americans scrambled to get their taxes done and paid by April 15.

The majority of filers get refunds.

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But what if you didn’t hustle to file because you couldn’t pay? Or maybe you did file but couldn’t pay all that you owed? One in six taxpayers owes money, according to the IRS.

Increasingly, I run into people with tax collection issues. Many are entrepreneurs. In struggling to keep their businesses running, they didn’t pay estimated taxes during the year. So they end up owing lots of money.

Fearing the IRS will move aggressively to collect, they don’t call or respond to letters from the agency. Instead, they gravitate to the voices that offer too-good-to-be true deliverance. “If you owe $10,000 or more to the IRS, call for a free tax consultation,” the saviors say. “We can stop IRS liens, levies, and wage garnishment.”

Have faith, the tax-relief companies encourage. Through working with their team of tax experts, often claimed to be former IRS agents, they guarantee that they can help you escape most tax obligations, including penalties.

But as it says in scripture, “faith by itself, if it does not have works, is dead.”

‘Chances are you don’t need to pay somebody. You may be able to do a lot of work on your own.’

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In the case of tax debt, you can believe if you want that there is some quick fix or a former IRS worker who knows the secret to getting tax relief. But blind faith in a debt-settlement company is likely to leave you deeper in debt and still stuck with a tax bill. Many of the companies require thousands in upfront, nonrefundable fees, money you could apply to your taxes.

In recent years, several large tax-relief companies have closed after authorities accused them of deceptive practices. Roni Deutch, who called herself the “Tax Lady,” shut down her practice after California’s attorney general alleged her company swindled thousands of people by taking large upfront payments while providing little or no help in lowering tax bills.

The IRS offers a number of options if you owe and can’t pay. You can pursue the options yourself. In just minutes, you can set up an online payment agreement for up to 72 months if you owe $50,000 or less in combined tax, penalties, and interest. Go to www.irs.gov and search for “Online Payment Agreement Application.” You can also request a payment agreement by filing IRS Form 9465. “We work with people all the time to get them back in the system,” said IRS spokesman Eric Smith. “Chances are you don’t need to pay somebody. You may be able to do a lot of work on your own.”

You can also try to get the IRS to reduce your tax burden by asking for an “offer in compromise,” or OIC. This allows the IRS to accept less than the full tax payment under certain circumstances. If you’re in great economic hardship, you may qualify. But you first have to provide detailed financial information to prove your economic situation and you have to exhaust all other payment options. The IRS received 64,000 offers in compromise during the fiscal year that ended last September and it only approved 24,000. You can use the IRS’ OIC prequalifier tool on its website to see if you’re eligible.

Even if you decide you still need help from a tax professional, do some homework to learn about the IRS collection process. If you have a good working knowledge of your own, you’ll get better help, Smith said.

The IRS has a series of videos at IRSVideos.gov/OweTaxes that provide a lot of information on the collection process. If you’re low-income, you may be able to get help through the Low Income Taxpayer Clinic Program, which is run by the Taxpayer Advocate Service and provides free or low-cost assistance. Go to www.irs.gov and search for “Contact a Low Income Taxpayer Clinic.”

If you have tax debt, stop hoping for a savior and contact the IRS.

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