New FTC Telemarketing Rule Affects Taxpayers

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According to sources at, the Federal Trade Commission (FTC) is cleaning house on companies that lure in taxpayers with the promise of drastically reducing their IRS debts. Independent Web site breaks down the law so taxpayers know what to expect.

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The rules are designed to put power back into the consumer's hands

The landscape of options for taxpayers with IRS problems will change drastically this week. A new FTC rule takes effect on Wednesday that protects consumers from deceptive sales practices in the tax debt relief industry. Independent Web site breaks down the law so taxpayers know what to expect.

According to sources at, the Federal Trade Commission (FTC) is cleaning house on companies that lure in taxpayers with the promise of drastically reducing their IRS debts. Beginning Wednesday, the FTC will have legal authority to ban tax debt relief firms from collecting advance payments until a customer’s debt has been settled, and then only after the customer has started making payments toward the settlement.

Simply speaking, this rule means that many national tax debt relief firms, which advertise across state lines, will have to change their fee structure or will likely fail. Because of their business models, some large firms have to charge upfront retainers to cover their expensive marketing costs. The FTC rule prevents them from charging advance fees, abruptly stopping their cash flow. The firms that comply may be in financial trouble immediately. And the firms that ignore the rule will likely face FTC enforcement. Either way, customers may be wary of tax debt relief companies that advertise on TV or radio—or those that ask for advance fees before services are performed.

“If you pay (tax relief companies) an upfront fee, which can be thousands of dollars, these companies claim they can reduce or even eliminate your tax debts … . Walk away if a company requires a fee in advance for tax relief services. Check them out with the IRS,” the FTC warned in a recent consumer alert.

There are other major provisions. Under the FTC law, tax debt relief firms have a special duty to back up any claims in their advertising. They can’t promise to cut tax debt in half without substantiation or misrepresent the expertise of their staff.

The FTC also included some serious disclosure rules that took effect Sept. 27. They cover outbound telemarketing calls and inbound calls customers make to the firms.

Firms have to tell customers how much services cost, how long customers will have to wait to see results and any potential negative consequences of the arrangement, such as penalties that may result from delaying payment.

The federal government’s crackdown on this industry has been in the works for some time. Earlier this month, the FTC’s ruling in case number 3:2010cv02063 of the California Southern District Court shut down American Tax Relief, a Beverly Hills, Calif.-based firm accused of bilking taxpayers out of more than $60 million by making false claims of “pennies on the dollar” tax settlements. More lawsuits and forced closures may follow.

“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 requesting participation in the programs that were mentioned,” the FTC said in a consumer alert.

In fact, out of the almost 10 million taxpayers the IRS was pursuing at the end of last year, only 10,665—or about 0.1%—received offers in compromise, the program heavily advertised by many companies but rarely offered by the IRS. The IRS accepts offers in compromise only in cases of extreme financial hardship, said Jim Buttonow, 19-year IRS veteran and cofounder of tax software company New River Innovation.

“The rules are designed to put power back into the consumer’s hands,” Buttonow said. “Taxpayers will be able to make more informed decisions about how to deal with their tax problems.”

While the new regulations are designed to protect Americans who use tax debt relief services, the FTC recommended in its consumer alert that people stay away from tax resolution firms altogether—and instead tackle tax problems independently or get help from a trusted professional, such as an enrolled agent or a CPA. In many cases, individuals can resolve matters with the IRS themselves, without paying for expensive representation.

For taxpayers who want to work directly with the IRS, Buttonow’s company has developed a Web service at to help taxpayers resolve IRS problems online with confidence. provides Web-based problem analysis, math and paperwork customization. Buttonow said the site helps consumers solve their own IRS problems using a guided online interview that works much like Intuit’s TurboTax™ product for tax filing.

“The FTC is right—people can solve their own problems with the right information,” Buttonow said. “We’ve condensed the IRS procedure manual, with all the guidelines agents use, into a step-by-step software program. It removes most of the mystery, uncertainty and fear that come with solving IRS problems.”

New River Innovation company profile is the flagship Web site of New River Innovation, based in North Carolina and backed by a leading venture capital firm, Intersouth Partners.

The company 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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