Taxes are hard. Even if you farm them out to your friendly neighborhood tax preparer, you still have to put together your W-2s and 1099s and comb through your checkbooks and credit cards for deductions. When you run a business, you face the everyday drudgery of depositing payroll taxes, sending in your quarterly payments, and dealing with notices that seem to come out of nowhere from states you've never seen.
At the end of a day full of this stuff, you flip on the television and you see somebody telling you that you can settle your tax debts with the IRS for pennies on the dollar. When you see this, for one shining moment you feel like a chump for spending time and money getting your taxes right and paying them on time. Why bother when you can just do a pennies-on-the-dollar deal anyway?
Because there is STILL no Tax Fairy.
Two of the biggest players in the pennies-on-the-dollar tax settlement industry recently closed their doors. The first was Roni Deutch, the self-styled "Tax Lady." In the face of allegations that she took up-front payments from desparate taxpayers and failed to follow through, she surrendered her law license on her way to bankruptcy and contempt of court charges.
Now JK Harris has joined Roni Deutch in federal bankruptcy court. Like Ms. Deutch, JK Harris ended up in bankruptcy after battling state attorneys general over its business practices. The ability to make tax debts go away would be an extremely valuable attribute. The bankruptcy of these outfits is strong evidence that such ability is a myth. As Nevada tax practitioner Russ Fox explains:
- Only about 15% of Offers in Compromise successfully make it through the IRS;
- It typically takes over one year for an OIC to make it through the IRS;
- Most individuals will not qualify for an OIC; and
- If you look at the fine print of the commercials, you will see, “Case not typical. Your results may vary.”
When the IRS does accept an offer-in-compromise, they usually do so because you are truly broke. That's not really a taxpayer victory.
As unpleasant as dealing with your taxes might be, the alternatives are much worse. If you get into tax trouble, there's no Tax Fairy -- or Tax Lady -- to make it all better.