How Much Do Tax Relief Companies Charge?

By

Jill Nash

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Reviewed by

on

December 6, 2022

This article is Tax Professional approved

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Dealing with taxes when you’re substantially behind on your payments is stressful under the very best of circumstances—say, when you have the time and funds to settle everything and get back on track fairly quickly.

But when that’s not the case, many delinquent taxpayers turn to tax relief services, or companies that work on your behalf to help clear your name with the IRS. These services, also called tax resolution firms, work with taxpayers to alleviate the burden of heavy tax debt by negotiating terms with the IRS. But this service isn’t free. For many, paying a tax resolution service’s bill on top of the taxes you end up owing can be a bitter pill to swallow. Let’s look at how much tax relief companies charge.

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What does a tax relief company do?

A tax relief or tax resolution service acts as the middleman between you and the IRS to secure an affordable installment plan or alternative way to settle your debt. Occasionally, the relief service can substantially reduce your debt.

Any reputable company will offer you a free consultation to review your tax issues, explain your options, answer any questions, and present their fee structure.

Below are some ways they may be able to assist in clearing your tax debt to avoid tax liens or wage garnishment.

  • Negotiate with the IRS on your behalf. The tax relief company will work with the IRS to establish an Offer in Compromise, installment agreement, or penalty or interest abatement. Note that it’s extremely rare to get an Offer in Compromise approved, and any company that guarantees they will get you one is a scam.
  • File appeals. If you’ve applied for an Offer in Compromise or other settlement option, but the IRS has denied your application, a tax relief service can intervene on your behalf to appeal the ruling.
  • Tax audit representation. You have the legal right to represent yourself before the IRS. However, a tax relief firm usually has a tax attorney on staff who can represent you instead.

The costs of hiring a tax resolution company

Some companies charge a flat fee and may even require the full amount up front.

Others may allow monthly payments until the case is closed. There are also tax relief firms that charge an hourly rate for their services, and some will have minimums in terms of the amount of debt a taxpayer needs to have.

An important note: Before you make any payments or agree to any terms, make sure you do your due diligence on the company to find out whether they’ve had complaints to the Better Business Bureau or other consumer watchdog organizations. Because most taxpayers who owe a lot of money to the IRS are extremely stressed and fearful, the tax resolution industry is rife with scammers who capitalize on these fears. If you come across a disreputable company, you can report it to the IRS Office of Professional Responsibility using Form 14157.

In general, the average case can cost between $3,500 to $4,500 and run as high as $7,000, depending on your tax situation. If billed hourly, fees can range from $200 to as much as $1,000.

A general rule of thumb is that the more complex your case is, the higher the fees. For example, securing an Offer in Compromise carries a higher resolution fee than negotiating a simple installment plan.

Any additional documentation and information required by the IRS will also increase the fees since more time is needed to compile these items. The costs may be higher if your business is structured as a C corp or S corp.

The unpaid tax amount also plays a role in determining the cost of tax relief. A higher liability amount often requires more details and documentation to be sufficiently addressed. For example, a business owner who owes more than $50,000 to the IRS would fall at the higher end of the fee structure due to the amount of financial information needed. Conversely, one that owes less than $50,000 would likely carry a lower fee since it requires less documentation to resolve their case.

Below are average fees for tax relief options offered by resolution companies.

  • Tax preparation for unfiled taxes- Partnerships and corporations can run from $500 to $2,000, based on the complexity of the return.
  • Installment agreement - Roughly $2,500 to $3,500. This may run higher for business tax payment agreements.
  • Partial payment installment agreement - $3,500 to $5,000. This is higher than a regular installment agreement since more work is required.
  • Penalty abatement - This agreement requires proof of financial hardship. While often added to other services, it is also offered as a single solution for fees ranging from $250 to $1,000. There may also be a baseline fee of a percentage of the penalties reduced.
  • Offer in Compromise (OIC) - $4,000 to $7,500
  • Current Not Collectable (CNC) - $2,500 to $4,000
  • Innocent Spouse Relief - $3,500 to $5,000.

Should you hire a tax resolution company?

Now that you have a general idea of the price tag associated with tax debt relief, should you still hire them to help you with your tax obligations? Below are a few reasons to consider using a reputable, fully vetted tax resolution service.

  • You don’t have to communicate with the IRS. This reason alone can be a game changer, since dealing with the IRS can be a frustrating and intimidating experience.
  • Tax relief staff are experienced negotiators. The IRS won’t have your best interests in mind when directly negotiating a tax settlement with them. However, the Enrolled Agents and tax attorneys on staff at a tax relief company should choose the right solution for you based on your ability to pay.
  • Agents are tax code experts. Tax professionals at tax resolution companies are deeply familiar with the tax codes, which give them the upper hand in settling your tax debt with the IRS.
  • Tax relief staff can resolve your debt more quickly than you could alone. Since they are experienced and knowledgeable in tax liability issues, tax relief agents should be able to get faster results than if you were to do it yourself.

If your tax liability is less than $10,000 and is not time-consuming to resolve, it probably doesn’t make sense to pay for this service.

Since the decision to hire a tax relief service depends on your tax obligation amount, up-to-date and accurate bookkeeping is crucial. If you’re over two years behind on your books, Bench Retro’s specialized team of historical bookkeepers will get you caught up, so you know where you stand with the IRS.

How to find a reputable tax relief company

While there are many reputable tax resolution companies to choose from, there are just as many unscrupulous ones scamming many people out of thousands of dollars. The Federal Trade Commission (FTC)has received many complaints of scams from victims who had unauthorized credit card charges and bank withdrawals to pay for services they never received.

When seeking out a trustworthy tax relief company, consider the following:

  • Many tax relief companies advertise on TV, radio, and online. Don’t select a company based solely on its sales pitch.
  • Be wary of companies promising to give you complete relief from your tax liability, and those that misrepresent the time it will take to resolve your case.
  • Choose a company with a good reputation and several years of experience assisting other clients and businesses. Obtain references from other business owners who may have used the service.

The bottom line

While it’s certainly possible to negotiate a payment plan with the IRS on your own, hiring a tax relief service can give you peace of mind and ensure that your best interests are represented. If you’re considering hiring a tax relief service, research your options and choose the best company with experience dealing with the IRS. If you need recommendations, Bench partners with quality, highly vetted tax resolution firms who help our Retro clients get back on track with their finances. You can find out more on our Retro page.

After meeting your past due tax obligations, Bench’s year-round tax support can keep your tax returns current, so you’ll never miss another deadline. That means no more costly interest and penalties plus you’ll have peace of mind that you’re compliant with the IRS.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
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