Maria Garcia never dreamed she would land in so much trouble with the IRS. But a few years ago, she found herself owing about $32,000 in back taxes — a situation she says was partly caused by a family member fraudulently using her name and Social Security number for work.
Desperate for help, Garcia turned to TaxMasters, one of the many “tax relief” companies advertising heavily on TV, radio and the Internet.
“I’d run into tax problems, and their advertising was enticing,” said the Roseville, Calif., resident and mother of four adult children. “Needless to say, it was a fiasco. They prey on your fears of the IRS coming and taking what little you have: my car, my wages.”
After paying about $4,000 in upfront fees — and giving the company power of attorney to represent her before the Internal Revenue Service — Garcia thought her problems were over. Instead, they just got worse.
Months went by without any resolution. Meanwhile, the IRS tax penalties and interest kept climbing. After a year or so, Garcia owed more than $42,000.
“Every time I emailed (TaxMasters), they said: ‘We’re working on it.’ ”
In March 2012, the company, Texas-based TaxMasters Inc., filed for bankruptcy, leaving thousands of hapless taxpayers, including Garcia, in worse shape than when they started.
Every year, as the tax season closes, many Americans are unable to pay their full IRS bill or resolve their past-due obligations. These folks are often the target of “tax relief” companies.
As the economy perks up, many of these companies actually drum up more business, said Gary Almond, president of the Northeast California Better Business Bureau. “As the economy improves, some (consumers) want to resolve their past debts. They now may have equity in their home to resolve debt. Or they want to refinance their mortgage and need to settle their tax liens. Or they’ve become employed again and find that their wages are being garnished.”
While plenty of legitimate companies offer tax help to struggling consumers, a number of unethical companies, especially those charging high upfront fees, prey on unsuspecting taxpayers.
On its website, the Federal Trade Commission warns against companies charging upfront fees while claiming they can “reduce or even eliminate” tax debts.
“The truth is that most taxpayers don’t qualify for the programs these fraudsters hawk, their companies don’t settle the tax debt, and in many cases don’t even send the necessary paperwork to the IRS,” notes the FTC’s website.
In all cases, consumers should be wary of too-good-to-be-true claims.
“Some of these ‘effectiveness’ claims should be taken with a grain of salt. Everyone’s case is different; there are no blanket guarantees,” said the BBB’s Almond.
Among the more notorious tax-resolution empires was run by former Sacramento, Calif., attorney Roni Deutch, who famously branded herself “The Tax Lady” in late-night cable TV ads. Starting from a solo law practice in the late 1990s, Deutch eventually presided over a $25 million-a-year company with franchises and offices in 23 states.
In 2010, then-state Attorney General Jerry Brown filed a lawsuit accusing Deutch of swindling thousands of customers facing IRS tax woes. The state’s lawsuit said she charged individual clients up to $4,700 for tax help but delivered little or no results. As part of the lawsuit, she was ordered to pay $435 million in refunds to unsatisfied clients.
Defiantly maintaining her innocence, Deutch eventually closed her offices and surrendered her law license in May 2011, saying she was broke and unable to keep her company going.
While companies like Deutch’s and TaxMaster have been magnets for complaints, other tax-relief firms operate virtually complaint free.
“There are so many bad ones, but the credible companies are making a difference in people’s lives,” said Kathy Hill, founder and CEO of Tax Tiger in Sacramento, a tax resolution company with franchises in three other states.
Last year, she and others formed the National Association of Tax Resolution Companies, a Washington, D.C.-based group whose mission is to preserve the industry’s reputation and protect consumers from “unfair and deceptive” tax-resolution advertising tactics.
“It’s an association of the ‘good guys,’ ” said Hill, whose firm has an A-plus rating from the BBB.
One Tax Tiger customer, Roseville resident Jennifer Dunn, discovered a year or so ago that she was on the hook for nearly $70,000 owed to the IRS by her estranged husband’s concrete business. Amid her divorce, “I tried resolving it on my own with the IRS but wasn’t getting anywhere,” said Dunn, who said the IRS payment plan was more than she could afford on her schoolteacher salary.
She turned to Hill, who arranged an IRS compromise settlement of $871. As part of the 2012 agreement, Dunn must file her taxes on time for the next six years, or the deal is off.
Dunn said the relief of resolving her situation is huge. “She (Hill) was a savior, I tell you.”
©2013 The Sacramento Bee (Sacramento, Calif.)
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