IRS Insider Perspective on Debt Relief Industry Shakedown -- Where Can Taxpayers Turn Now?

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The implications of the FTC ruling for “pennies on the dollar” tax debt resolution firms are downright catastrophic, said tax expert Jim Buttonow, a 19-year IRS veteran and co-founder of tax software firm easyIRS.com. Because of the legislation, he said customers will more likely work directly with the IRS, without professional representation, or work with local tax practitioners.

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Congress and the FTC have given a big win for those consumers. The consumer is now in control and is protected from deceptive advertising

Tax industry insiders have been buzzing for the past week about recent FTC telemarketing laws that limit the ability of tax debt settlement firms to sell their services. One tax expert believes that the legislation could level the tax resolution industry—and overhaul options for consumers who need help.

The implications of the FTC ruling for “pennies on the dollar” tax debt resolution firms are downright catastrophic, said tax expert Jim Buttonow, a 19-year IRS veteran and co-founder of tax software firm easyIRS.com.

“Congress and the FTC have given a big win for those consumers. The consumer is now in control and is protected from deceptive advertising,” Buttonow said.

The new FTC rule prohibits debt relief firms from charging advance fees or making false promises about debt reduction, and requires them to adhere to strict disclosure standards. The FTC ruling in case number 3:2010cv02063 of the California Southern District Court reinforced its hard-line position Wednesday by shutting down American Tax Relief, alleging deceptive practices and false claims. In a separate matter, Roni Deutch, a California-based tax debt firm, is facing a $34 million lawsuit (Case Number 2010-00085933) filed by state Attorney General Jerry Brown in Sacramento County Superior Court. The state is claiming that Deutch advertises a success rate for IRS settlements of up to 99%, yet successfully reduces the amount of money her clients owe in taxes in just 10% of cases.

Buttonow, who worked extensively in debt relief as an IRS official, said the problem is in the business model.

The upfront cost of acquiring a customer with tax debt is extremely high. For example, TaxMasters, Inc., a tax debt relief firm that advertises heavily on radio, TV and the Web, disclosed in its recent Securities and Exchange Commission, or SEC, filings that it spends roughly 40% of its revenue in advertising and promotion to acquire customers. These costs necessitate collecting large upfront payments from clients. To convince cash-strapped prospects to commit to the large fees, tax debt firms often must exaggerate the money savings that a customer might receive from an IRS settlement, Buttonow said.

“These companies prey on the small percentage of Americans who are desperate to solve their situation,” Buttonow said. “The IRS is not scary to deal with as these organizations purport.”

Because of the legislation, he said customers will more likely work directly with the IRS, without professional representation, or work with local tax practitioners.

“Most problems just require that you understand your facts, the applicable law, and know how to navigate the IRS,” Buttonow said. “The best way to solve any IRS problem is to do it yourself or ask a trusted tax professional if your problem is serious. The FTC reiterated this position in their consumer alert issued this week.”

For Americans working directly with the IRS who want help understanding IRS processes, Buttonow’s venture-capital backed technology firm is ready to help. New River Innovation has developed patent-pending technology that solves a wide range of IRS problems for a fraction of the traditional cost. This software is available online at easyIRS.com.

New River Innovation CEO Alan Neely said easyIRS.com helps people solve their own IRS problems—intending to do for tax problem solving what Intuit’s TurboTax™ has done for tax filing.

“Our business model automates the other side of the IRS’s enforcement processes. People don’t need representation to work with the IRS. It’s just a matter of math and forms—not slick negotiating,” Neely said. “This shouldn’t be a mysterious process.”

New River Innovation company profile

easyIRS is the flagship product of New River innovation, based in North Carolina and backed by a leading venture capital firm, Intersouth Partners.

The firm is staffed by IRS and tax experts, as well as professionals experienced in high-security applications, Web technology, and intellectual property.

Using the Web, easyIRS applies years of practical, professional experience solving tax problems into a simple-to-use service.

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