Within the tax resolution industry, there are a variety of fee models that you should be aware of. Different fee models have different potentials for abuse by the company offering the services, and it is important to do your due diligence and fully understand what you are paying, how much, and when, before paying a single penny to a resolution company. of taxes. .

One of the most common fee models is a retainer model, which is a holdover from the CPA and law firm world that many tax professionals come from. Under this model, you pay an amount up front, which the company retains and then bills by the hour. Near the time the retainer runs out, you will (or actually SHOULD) receive a bill showing what was done, how long it took, and the hourly rate it was billed at. This invoice will usually also include a request for an additional advance payment. The key to remember here is that if you don’t keep paying, they don’t keep working.

If you’ve been researching individual companies online, you may have already come across BBB, forum, Attorney General and other complaints against some firms aggressively charging for advances and constantly asking for more money from their clients, with no progress being made. significant. we have the actual tax case of a client. It is important that you thoroughly examine a company before giving it money, to avoid becoming another victim of a deceptive company.

Another common fee model is the flat fee-for-service model. This rate model has a large number of variations, from a flat rate for a specific package of quoted services, to a “menu of services” model where each service you can order from the menu has a specific rate. This latter method is very similar to the more common pricing model used in tax return preparation, where each specific tax form has a particular fee to prepare it. You’ll see this fee model used by almost any CPA company or retail tax preparation team (including Jackson Hewitt, H&R Block, etc.).

When talking to a salesperson about a service package, it’s very, very important that you understand exactly what services you’re being quoted for and what the company’s policy is regarding fees for additional services. When it comes to tax matters, it is not uncommon for additional services to be required, which will require additional fees if they are not covered in the quote you are already working with. Ideally, the sales person you talk to will have done a thorough analysis of his situation and included everything in the proposal sent to you.

When comparing proposals between various companies, keep in mind that you’re probably not comparing apples to apples, but apples to oranges. Here are things to consider when comparing proposals between companies competing for your business:

  • Is any tax return preparation included in the quote?
  • Does the fee include all the appeals necessary to handle your case?
  • For business owners, is trust fund recovery penalty representation included?
  • How many quarters or years of tax problems are covered by the rate quote?
  • Is a penalty reduction request included or is it additional?
  • What specific resolution option does the fee cover and what happens if the resolution strategy changes?

This last question is particularly important. There are some tax resolution firms that will try to sell everyone an Offer in Compromise, because they charge a higher fee for this service. However, it is essential that anyone and everyone understand that most individuals and small businesses DO NOT QUALIFY for an offer in compromise. In fact, the IRS accepts less than 20% of all offers that are submitted, and the only reason this number is so low is because of the large number of ineligible offers that are submitted in the first place. It is also important to understand that the average processing time for an Offer in Compromise exceeds 10 months.

What does this mean for your rate? Well, a reputable company will carry out a thorough financial analysis and tell you whether or not you are a candidate for the Offer. If not, they will negotiate another resolution option for you at the same rate. If a company tells you that it will charge you an additional fee to negotiate an installment agreement (monthly payment plan) after you have paid a higher fee for an offer in compromise, then you should seriously question it.

You should also beware of the company that tells you that yes, you are an Offer candidate, even when you have assets that exceed your tax liability. Simply put, if you have assets that exceed your tax liability, then the IRS never accept your Offer. There is one incredibly rare exception to this rule, but it’s so rare that it only happens once or twice a year (literally). This exception is called the “Effective Tax Administration” rule, and if a company tells you that you may qualify under this rule, then they are likely lying to you outright. You practically have to be on your deathbed to qualify for this exception.

Another important aspect to consider when discussing fees is the question of what is an appropriate fee and what is too much. The cost of a service obviously varies by geographic location, but in general, the fees for tax resolution services across the country are divided between what is appropriate and what is not. Here are some examples of what would be considered standard rate ranges for certain services:

  • Negotiating an IRS Installment Agreement, Penalty Abatement, and All Appeals of a $40,000 Personal Income Tax Debt: $2,500
  • Same as above, but with a business employment tax liability of $200,000: $5,000 to $7,000
  • Trust Fund Recovery Penalty Representation: $1,000 to $2,500, depending on the nature of the case
  • Preparing a Basic Income Tax Return Personal, Married Filing Jointly, One House, Two Jobs, Partner Children: $300-$500
  • Prepare an income tax return for a small business with less than $250,000 per year in income and no significant assets: $500-$800
  • Preparation of a more advanced corporate tax return with multiple shareholders, assets, high income, etc.: $1,200-$2,500
  • Negotiating an Offer in Compromise on $150,000 Personal Tax Debt: $3,500 to $5,000
  • Negotiate the release of a wage garnishment, and nothing more: $400 to $1,000

These are just examples of the types of fees you may see when it comes to solving tax problems. There are numerous factors that go into properly quoting a tax resolution fee, but when comparing proposals, these numbers can give you a good idea of ​​what is considered reasonable.