FTC Cracks Down On “Pennies On The Dollar” Tax Firms

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According to independent Web site easyIRS.com, a coalition of tax debt relief industry leaders is scrambling to come up with a response to Federal Trade Commission (FTC) actions against deceptive advertising practices.

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companies that sell debt relief services on the phone—including promoters of tax relief and settlement services.

There is big trouble brewing in the tax resolution world. And it all boils down to semantics.

According to independent Web site easyIRS.com, a coalition of tax debt relief industry leaders is scrambling to come up with a response to Federal Trade Commission (FTC) actions against deceptive advertising practices.

easyIRS.com has obtained e-mail evidence that some tax debt firms are joining forces to lobby Congress to spare their industry from the FTC’s wrath. They will base their case on a potential loophole in the law—and argue that the rules don’t apply to them.

The FTC telemarketing regulations that take full effect later this month point to firms dealing in the relief of “unsecured debt,” such as credit card, medical, or tax debt. The FTC released a consumer alert Wednesday further clarifying its intent to include “companies that sell debt relief services on the phone—including promoters of tax relief and settlement services.”

This alert sent the tax debt industry scrambling. In an e-mail announcement Wednesday, the National Policy Group, a lobbying firm that is representing some tax debt relief companies, explained its take on the word “secure.”

“It is our understanding that tax debt is considered ‘secured’... We understand that the inclusion of tax debts in the TSR was erroneous,” NPG representative Kallie Guimond explained in the e-mail.
Either way, the FTC began its sweep Wednesday by shutting down American Tax Relief for alleged deceptive practices and false claims in advertising.

Roni Deutch, a California-based tax debt firm, is also facing a $34 million dollar lawsuit filed by state Attorney General Jerry Brown. The state contends 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.

Tax industry insider Jim Buttonow, CPA and 19-year IRS veteran, said he isn’t surprised the FTC took action or that the industry is searching for a way out. “This is a long-shot position that the FTC does not appear to support,” he said.

Buttonow views the FTC ruling as good for consumers. He says “customers will more likely work directly with the IRS, without professional representation, or work with local tax practitioners.” This is also good news for the emerging Web-based tax software sector. Several new companies provide low-cost, Web-based software to fix IRS problems.

“Dealing with the IRS shouldn’t be a mysterious process,” said Alan Neely, cofounder of easyIRS.com. “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,” he said.

The idea that dealing with the IRS can be cut and dry, rather than nuanced and negotiated, is not the message Americans are used to. Neely said that by providing Web-based problem analysis, math, and paperwork customization, his company’s software helps consumers solve their own IRS problems—intending to do for tax problem solving what Intuit’s TurboTax™ has done for tax filing.

In the end, the same FTC rules that rein in deceptive tax resolution firms may open new doors for consumers to take control of their personal IRS problems.

New River Innovation company profile

New River Innovation, Inc. is a company based in North Carolina and backed by a leading venture capital firm, Intersouth Partners. We are staffed by IRS and tax experts, as well as professionals experienced in high-security applications, Web technology, and intellectual property.

Using the Web, New River Innovation applies years of experience solving tax problems into easy-to-use software applications.

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Jayme White

Reed Humphrey