We may receive a commission if you sign up or purchase through links on this page. Here's more information.
There are only two ways out of tax debt. You can either pay the amount you owe or set up a payment plan with state or federal tax authorities.
Dealing with the IRS directly and negotiating the terms of the deal requires familiarity with tax laws and completing numerous forms, so most taxpayers in this situation choose to hire a tax relief company to help them deal with the IRS.
The cost of a tax relief company’s services depends on its fee structure and the specifics of the case, but on average, you should expect to spend between $2,000 and $5,000.
Let’s look at the services these firms offer and how much a tax relief company might charge to help you settle a tax debt.
Table of Contents
A Brief Look at the Services Tax Relief Companies Offer
Beware of tax relief companies that promise to significantly reduce your tax debt and save you thousands of dollars before even looking at your case since they’re most likely a scam.
The IRS writes off tax debt, civil penalties, and interest only under specific circumstances.
More often than not, the best a tax relief company can do is get the IRS to waive a portion of the debt or penalties if a taxpayer cannot obtain a job due to a disability or pay the debt due to financial hardship.
Although each tax relief firm offers a slightly different service, you’ll most likely go through the following stages.
- Consultation: The initial stage begins when you contact a company, usually by scheduling an online meeting or a telephone call on their website. A tax professional will ask questions about the amount you owe and your financial situation during this stage. This service is commonly free, but some companies might charge a small fee.
- Tax analysis: If you agree to use their services, the company will assign a CPA or tax attorney to your case. The person responsible for your case will review your tax transcript and all correspondence you received from the IRS, such as Notice CP11, CP 501, or CP 504. You may also have to complete a financial questionnaire to give the company more insight into your financial circumstances.
- Tax debt resolution: The company should present the best solution for your tax debt after completing the tax analysis stage. They should also complete and file necessary forms, handle all correspondence with the IRS or state taxing authorities, and negotiate lump sum or monthly payment solutions you can afford.
Tax relief companies usually don’t accept cases if the debt is under $5,000 or $10,000. Consequently, you must check the minimum debt required on the company’s website before scheduling the consultation.
The company will represent you before the IRS if they agree to take your case and handle the entire tax relief process, from filing the necessary documents to managing the correspondence with the IRS.
Tax relief firms can also assist you with appealing an IRS decision you disagree with or help you navigate an audit.
How Much Do Tax Relief Companies Charge?
The amount you must pay to a company for its services will depend on the outcome of the tax analysis stage and the tax relief solution they propose. Here’s an overview of the average prices tax relief companies charge for their services:
Tax analysis
A tax relief company must review your tax documents before taking further action. Most companies charge $200 to $500 to complete the tax analysis.
Filing overdue taxes
The IRS cannot approve your installment agreement or Offer in Compromise application before you file all past due returns. The price of this service ranges from $500 to $2,000 per tax return, depending on the complexity of the case.
Partial Installment Agreement
Tax relief companies charge from $3,500 to $5,000 to secure partial installment agreements for their clients who cannot pay the balance due before the statute of limitations on collection expires.
Installment Agreement
The average fee for an installment agreement application is $2,500 to $3,500. Still, you may have to spend more if the IRS has already placed a lien on your property, levied your bank account, or garnished your social security.
Offer in Compromise
The company must explain why pursuing an offer in compromise is the best solution for your situation and present the backup plan in case the IRS rejects the application before charging you for this service. The average fee for an offer in compromise is $4,500 to $7,500.
Currently Not Collectible Status
Obtaining the CNC status will temporarily stop the IRS’ collection activity, but your debt will keep growing because the IRS won’t stop charging penalties and interest. This service usually costs between $2,500 and $4,000.
Innocent Spouse Relief
If you’re eligible for the innocent spouse relief, you’ll spend $3,500 to $5,000 on tax relief company fees.
Penalty Abatement
This is usually an add-on service included with other fees a company charges. Still, in some cases, you may request the penalty abatement as a stand-alone service. Its average price is between $250 and $1,000.
Understanding the Pricing Options
Having an experienced tax professional by your side to guide you through the debt settlement process is the key advantage of using the services of tax relief companies.
The firm you hire should be upfront and transparent about their fee structure so that you can know how much and when you have to pay for the service you need.
For instance, the company’s website should indicate if their consultation services are free and their minimum debt requirement.
During the consultation, the company’s representative should inform you about the available payment options and indicate how much the tax analysis will cost. Most tax relief companies use the following fee structures:
- Fixed Fee: Some firms offer their services at flat rates. Hence, the amount you’ll pay depends on whether you need a simple installment agreement or an offer in compromise. In most cases, you’ll make a downpayment upfront and pay the remaining amount after the tax debt is settled.
- Hourly rate: The cost of the services you must cover can depend on how many hours a tax professional spends on your case. The hourly rate ranges from $200 to $500.
- Monthly payments: Instead of requesting the full payment, some tax relief firms allow their clients to pay the fee in monthly installments.
Verifying The Company’s Credibility
Radio, social media, or TV ads often promise more than a tax relief company can deliver. Some commercials even claim the company can eliminate your tax liability despite the fact that the IRS doesn’t forgive tax debts.
Consequently, you must be cautious when choosing a tax relief company that will represent you before the IRS. Here are some things you can do to avoid scammers who’ll charge you for the services they won’t provide.
- Be careful with upfront payments: Don’t pay all the fees upfront before doing a background check and making sure the company you’re dealing with is credible.
- Read the online reviews: Unhappy customers leave bad reviews. Take a moment to look at what others are saying about the company before making a financial commitment. Moreover, you should check the company’s Better Business Bureau (BBB) rating to find out if they’re acting in their clients’ interests.
- Avoid companies that don’t request to see your tax documents: A trustworthy tax professional will never suggest a tax relief solution before they complete the full analysis of your tax debt and financial situation.
You can report a company that requests unauthorized bank withdrawal, fails to deliver the services they promised, or commits some other type of fraud to the Federal Trade Commission or the Treasury Inspector General for Tax Administration.
Frequently Asked Questions
The fixed or hourly rate a tax relief company charges depends on the client’s tax debt. Clients who owe the IRS $10,000 to $20,000 usually pay lower fees to tax relief companies than those with tax debts in the $50,000 to $100,000 range.
You’ll have to authorize a tax relief company to represent you before the IRS if you decide to use their services. They’ll complete all forms and manage all aspects of the tax relief process, so you won’t have to contact the IRS directly.
The IRS charges a setup fee for installment agreement applications, and you must pay this fee separately from the fees you pay to a tax relief company that submits the application for you.
Tax relief companies assist identity theft victims, but on average, they charge $2,500 to $5,000 for this service.
Determining When to Use the Services of Tax Relief Companies
The fear of facing the IRS collection process and potentially losing property is completely understandable, but you shouldn’t let it force you into making rash decisions or prompt you into hiring a tax relief company that gives you unrealistic promises.
Unlike companies that attempt to take advantage of your situation, a credible tax relief firm will review your tax documents and use their assessment to suggest a solution that will put the least possible financial strain on you.
Most importantly, they’ll advise you not to use their services if your tax debt is relatively small and easy to resolve. Do you need assistance with a tax debt over $10,000? Schedule a free consultation at Choice Tax Relief to find out which tax relief options are available to you.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
