Consumers that have had their debt settlement company fail are going to be dumped back at square one
Greensboro, NC (Vocus) October 18, 2010
Customers of “pennies on the dollar” tax debt relief firms that go out of business will have few immediate remedies to get their money back, according to independent Web site easyIRS.com. Therefore, taxpayers with delinquent or problem accounts may want to reconsider their options now, before it gets too late.
Recent Federal Trade Commission (FTC) legislation that cracks down on deceptive practices will likely cripple the tax debt resolution industry. The rules prohibit tax debt relief firms from making false promises about debt reduction and require companies to adhere to strict disclosure standards. Starting Oct. 27, the firms will be prohibited from charging advance fees.
Many of the firms rely on upfront fees to stay afloat, so the ones that comply with the advance-fee ban may fail. The firms that ignore the rules will likely face FTC enforcement. Either way, customers will be affected.
There are a few things customers can do when their debt settlement company fails, Steve Rhode explained on his blog, How to get out of debt. But getting money back can take a long time or may not happen at all, he said.
Consumers can file a lawsuit through local small claims court, Rhode said. He also said that when debt relief companies fail, customers can file complaints with the Better Business Bureau, state attorneys general or local consumer protection offices, though filing complaints only documents bad treatment.
“Consumers that have had their debt settlement company fail are going to be dumped back at square one,” Rhode wrote. “There will be no foreseeable company or enterprise to take over abandoned clients for free.”
Even though these customers have few options to get their money back, their options going forward to deal with their IRS problems are better, said Jim Buttonow, 19-year IRS veteran and cofounder of tax software company easyIRS.com.
Because of the legislation, Buttonow said taxpayers will more likely work directly with the IRS, without professional representation, or work with local tax practitioners. An FTC consumer alert recommended the same approach.
For taxpayers who want to work directly with the IRS, a new Web-based tax software service helps them solve their own tax problems for less than 30 minutes with a tax attorney, said Buttonow, whose firm, New River Innovation, developed easyIRS.com. He said that by providing Web-based problem analysis, math and paperwork customization, easyIRS.com helps consumers solve their own IRS problems—intending to do for tax problem solving what Intuit’s TurboTax™ has done for tax filing.
Buttonow emphasized that dealing with the IRS is not complex or negotiated. “IRS agents on the phone and at regional offices are trained to accept arrangements according to IRS guidelines,” Buttonow said. “In reality, there’s little room for negotiation. It’s simply a matter of math and format.”
With a simple Freedom of Information Act request, easyIRS.com obtained the IRS guidelines and developed its software to respond to them.
Buttonow emphasized that the software firm doesn’t act as a power of attorney for its clients or make unrealistic promises about debt reduction. “People can easily solve their own tax problems and save money with the right diagnosis, information, and coaching.”
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