Tax Relief Companies: How to Spot a Scam Before You Pay

Last year, Americans lost $29 billion to tax relief scams. Most victims never saw it coming. They got a call promising to settle their IRS debt for pennies on the dollar, paid an upfront fee, and watched the company vanish.

The IRS does offer legitimate debt relief through its Offer in Compromise program. But scammers exploit that fact, using aggressive tactics to pressure you into paying for help you don't need or services they'll never deliver.

You need to know what real tax relief looks like and what scammers sound like. Once you can spot the difference, you protect both your money and your tax situation.

What the Offer in Compromise Program Actually Does

An Offer in Compromise (OIC) lets you settle your tax debt for less than you owe if paying the full amount would cause financial hardship. The IRS approved 17,890 offers in 2023, with an average settlement of 13 cents per dollar owed.

That 13-cent figure is real. But getting there requires meeting strict qualifications. The IRS evaluates three factors:

• Your income and necessary living expenses
• Your assets and their equity value
• Your ability to pay over time

If the IRS determines you can pay your full debt through an installment agreement or other means, they reject your offer. About 40% of OIC applications get rejected for this reason alone.

Before you apply, you must be current on all tax filings and estimated payments. If you're in an active bankruptcy case, you can't submit an offer. These requirements eliminate most people before they start.

Five Red Flags That Scream 'Tax Relief Scam'

Scammers follow a pattern. They use urgency, big promises, and fake authority to push you into a decision before you think it through.

1. They Promise to Eliminate Your Tax Debt

No one can guarantee the IRS will accept your offer. Legitimate tax professionals will review your finances first and tell you whether you qualify. If someone promises to wipe out your debt before asking about your income, assets, or expenses, they're lying.

2. They Demand Large Upfront Fees

Some companies charge $5,000 or more before doing any work. They claim this covers the cost of preparing your offer, but once you pay, they disappear or stall for months before telling you the IRS rejected your application.

Legitimate tax attorneys and CPAs charge reasonable fees and explain their process upfront. Many work on a pay-as-you-go basis.

3. They Contact You First

The IRS does not call, email, or text you about unpaid taxes without sending written notice first. If someone reaches out claiming you qualify for a "special government program," it's a scam. Real tax professionals don't cold-call people offering debt relief.

4. They Use Threats and Fear Tactics

Scammers threaten arrest, deportation, license suspension, or seizure of your property if you don't pay immediately. The IRS does not operate this way. They send notices through the mail. They give you time to respond. They follow a clear collection process.

If someone says local police or immigration agents will arrest you for unpaid taxes, hang up. That's not how tax enforcement works.

5. They Never Review Your Financial Situation

A real tax professional needs to see your income, expenses, assets, and liabilities before determining whether an Offer in Compromise makes sense. If a company tells you you're eligible without asking for financial documents, they're guessing or lying.

What Legitimate Tax Help Looks Like

Not all tax relief companies are scams. Some provide real value. Here's how to identify them:

They ask detailed questions upfront. Before quoting a fee, they want to know your income, expenses, assets, tax filing status, and how much you owe. This information determines whether you qualify for an OIC or whether another option works better.

They explain all your options. An Offer in Compromise isn't the only way to resolve tax debt. You might qualify for an installment agreement, currently not collectible status, or penalty abatement. A legitimate professional discusses these alternatives.

They have verifiable credentials. Look for enrolled agents (EAs), certified public accountants (CPAs), or tax attorneys. You can verify an EA's credentials through the IRS website. CPAs and attorneys have state licensing boards that track disciplinary actions.

They don't make guarantees. Real professionals tell you what's likely based on your situation, but they don't promise a specific outcome. The IRS makes the final decision.

They charge reasonable, transparent fees. Expect to pay $2,000 to $4,000 for full OIC representation, depending on complexity. Some charge hourly rates. All should provide a written fee agreement before starting work.

How to Protect Yourself From Tax Scams

Start by ignoring unsolicited offers. If you didn't reach out to a tax relief company, don't engage with them. Delete the email. Hang up the phone. Real companies don't chase you down.

Verify credentials before hiring anyone. Check the IRS directory of federal tax return preparers. Search your state's CPA board or bar association for complaints. If the person isn't licensed, walk away.

Never pay upfront fees without understanding what you're buying. Ask for a detailed service agreement that lists what the company will do, how long it will take, and what happens if the IRS rejects your offer.

Use the IRS's Offer in Compromise Pre-Qualifier tool to see if you're even eligible. It's free and takes about 20 minutes. If the tool says you don't qualify, hiring a company won't change that.

If you're drowning in debt and considering bankruptcy as an option, tax debt complicates the decision. Some tax obligations discharge in bankruptcy, but many don't. Understanding your full financial picture matters before you commit to any single strategy.

What to Do If You've Been Scammed

If you paid a tax relief company and they disappeared or failed to deliver, you have options.

Report the scam to the Federal Trade Commission at reportfraud.ftc.gov. The FTC tracks scam patterns and can take enforcement action against repeat offenders.

File a complaint with the Treasury Inspector General for Tax Administration (TIGTA) at tigta.gov if the scammer impersonated an IRS agent. TIGTA investigates criminal fraud.

Contact your state attorney general's office. Many states have consumer protection divisions that pursue fraudulent businesses. Some offer mediation services to help you recover fees.

Dispute the charge with your credit card company if you paid by card. Explain that the company misrepresented its services or failed to deliver. You may be able to reverse the charge.

Don't let the scam stop you from addressing your tax debt. The IRS won't ignore what you owe just because someone ripped you off. Reach out to a licensed professional or contact the IRS directly to set up a payment plan.

Alternatives to Offer in Compromise

Most people who owe the IRS don't qualify for an OIC. But you still have options that don't involve giving thousands of dollars to a scam artist.

Installment agreements let you pay your debt over time, typically 72 months or less. If you owe less than $50,000, you can apply online and get approved within 24 hours. The setup fee is $31 if you agree to automatic payments.

Currently not collectible status pauses collection if you can prove you can't afford to pay anything. The IRS stops garnishments and levies while you're in this status, though interest and penalties continue to accrue.

Penalty abatement removes late-payment or late-filing penalties if you have a good reason for missing deadlines. The IRS grants first-time penalty abatement to taxpayers with clean compliance histories.

Innocent spouse relief protects you from liability for your spouse's tax mistakes or fraud. You must prove you didn't know about the error and that holding you responsible would be unfair.

If none of these work and your total debt exceeds $25,000, you might benefit from professional help. Just make sure you're hiring someone who will actually do the work. Use our bankruptcy screener to see if filing bankruptcy makes more sense given your full debt load.

When to Hire a Tax Professional

You can handle many IRS issues yourself. Setting up an installment agreement doesn't require a lawyer. Requesting penalty abatement takes one phone call. But some situations need professional help.

Hire someone if you:

• Owe more than $50,000 and need a complex payment arrangement
• Face wage garnishment or bank levies
• Haven't filed returns for multiple years
• Run a business with payroll tax problems
• Qualify for an Offer in Compromise but don't understand the application process

In these cases, the cost of hiring an enrolled agent or tax attorney pays for itself by preventing bigger problems down the line. Just vet them carefully before you hire.