How to choose a tax professional for IRS debt

Robert paid $4,900 to a company he found through a television commercial. For that money he received a salesperson who promised him a settlement, a form he filled out himself and mailed to them, an Offer in Compromise that had no chance of acceptance because his house made him ineligible, sixteen months added to his collection statute while the hopeless offer was pending, and, after the rejection, a second salesperson who called to sell him a second offer.

Michael paid about $3,200 to an enrolled agent in his town who got his bank levy partially released in eleven days, filed his missing return, obtained First Time Abate on his oldest year, negotiated a non-streamlined installment agreement with a step-up, and handled the two Collection Due Process hearings that followed. He has her number saved.

Same industry, on paper. This chapter is about telling the two apart, deciding whether you need either, and getting value if you do.

Who is allowed to represent you

Three kinds of professionals have unlimited rights to represent taxpayers before the IRS in collection matters: attorneys, certified public accountants, and enrolled agents. All three can talk to the IRS on your behalf, receive your notices, negotiate agreements, submit offers, and represent you in Appeals. The rules that govern their conduct are in a Treasury publication called Circular 230.

Enrolled agents are licensed by the IRS itself, either by passing a three-part examination on federal tax or through prior IRS employment. Their license is federal and national; an enrolled agent in Ohio can represent you in Oregon. Tax is all they do. For collection matters, which are mostly about procedure and financial analysis rather than substantive law, a good enrolled agent is often the most cost-effective choice, and the best ones have handled hundreds of installment agreements, offers, and hearings.

Certified public accountants are licensed by state boards and are trained in accounting broadly. Some do extensive IRS representation work. Many do not; their practice is tax preparation and financial statements, and they handle a collection matter once a year. Ask.

Attorneys are licensed by state bars. For collection work, an attorney brings two things the others cannot: the attorney-client privilege, which protects your conversations from being used against you, and the ability to represent you in bankruptcy and in criminal matters. If your case has any criminal exposure, any bankruptcy dimension, or a dispute likely to end up in Tax Court on an unusual issue, you want an attorney. If your case is an installment agreement, you are paying a premium for a tool you will not use.

A fourth category deserves mention. Low Income Taxpayer Clinics are independent organizations, often attached to law schools or legal aid offices, funded in part by the IRS, that represent taxpayers whose income is at or below 250 percent of the federal poverty level in disputes with the IRS, usually at no charge. They handle collection cases, innocent spouse cases, audits, and Tax Court matters. If your income qualifies, the clinic in your area may be the best representation available at any price. The IRS publishes a list. Linda's daughter consulted one for the effective tax administration offer and received two hours of review from a supervising attorney that materially improved the narrative.

Unenrolled return preparers, including people who hold the IRS's Annual Filing Season Program credential, have only limited representation rights, mostly over returns they themselves prepared. They cannot represent you in collection.

Whoever you hire, two forms make it real. Form 2848, Power of Attorney and Declaration of Representative, authorizes a specific person to act for you on specific tax matters and years. Once it is on file, the IRS will talk to them and will send them copies of your notices. Form 8821, Tax Information Authorization, lets a person see your information without authorizing them to act. If you are paying someone to represent you and they have not filed a 2848 in their own name, listing you as the taxpayer, they are not representing you. That is the first thing to check.

Do you need one

I gave a short version of this test in Chapter 4. This is the longer one.

You can probably handle your own case if all of the following are true: the total balance is under $50,000, every return is filed, your income is wages or a simple pension, there is no payroll tax, no revenue officer is assigned, the IRS's number is right or close to it, and you have the time and temperament to make calls, keep a log, and follow through. Jennifer fit every one of these. So, after the mill was gone, did Robert.

You should at least consult a professional, meaning pay for an hour or two of analysis before deciding, if any of these is true: the balance is above $50,000; there are unfiled years; the debt involves a business; a revenue officer has been assigned; you believe the IRS's number is significantly wrong; you are considering an Offer in Compromise and your two numbers make it close; there is a Collection Due Process hearing coming and you have never done one; or you are overwhelmed and know you will not follow through alone. Michael, Anthony, and Sarah were in this group.

You need a professional, specifically an attorney, if there is any possibility of criminal exposure, if a bankruptcy analysis is part of the picture, or if you are facing a Trust Fund Recovery Penalty assessment that you intend to contest. David hired a tax attorney before his Form 4180 interview, which was the right call, because the interview is sworn and the answers are the case.

The cost of a consultation is low. The cost of hiring the wrong person is Robert's sixteen months. The cost of hiring no one when you needed someone is usually measured in missed deadlines, which are the one thing in tax collection that cannot be undone.

How fees work

Legitimate representatives charge in one of two ways.

Hourly, typically between $150 and $500 an hour depending on credential, location, and experience, with a retainer up front that is drawn down as work is done and refunded if unused. This is common for attorneys and for complex matters where the scope is unclear.

Flat fee by phase, which is what most enrolled agents and representation-focused CPAs use. A typical structure has an investigation phase, where the representative files the power of attorney, pulls transcripts, computes collection deadlines, checks compliance, and gives you a written assessment of your options, for a fee in the range of a few hundred to a thousand dollars. Then a resolution phase priced according to what is being done: a streamlined installment agreement at the low end, an Offer in Compromise or an audit reconsideration or a Trust Fund Recovery Penalty defense at the high end, several thousand dollars.

The investigation-first structure is the tell of a legitimate practice. A representative who looks at your transcripts before quoting a resolution fee is pricing actual work. One who quotes a resolution fee on the phone before seeing anything is pricing a sales process.

What a reasonable total looks like, from the cases in this book: Jennifer paid nothing. Robert paid $4,900 for harm and $0 for the CNC status he obtained himself. Michael paid about $3,200 for the full case. Anthony paid about $600 to a preparer to review the three returns he had drafted, and did the offer himself with his sister's help. Sarah paid about $2,800 to an attorney for the innocent spouse request and the hearing. David paid about $9,000 to a tax attorney across the penalty interview, the business agreement, and the designation strategy, and considered it the best money the restaurant ever spent. Linda paid nothing, through the clinic and her daughter.

The warning signs

The IRS lists Offer in Compromise mills on its annual list of the worst tax scams. The Federal Trade Commission has shut down several of the largest tax-relief companies for deceptive practices. State attorneys general have pursued others. The pattern they describe is consistent, and you can recognize it.

There is a reason the mills exist and it is not that the IRS does not care. In 2014 a federal appeals court, in a case called Loving v. IRS, held that the IRS had no statutory authority to license or regulate paid tax return preparers who are not attorneys, CPAs, or enrolled agents. The decision left the IRS able to discipline credentialed practitioners under Circular 230 and largely unable to touch the sales operations that advertise on television, because those operations are not practicing before the IRS; they are selling, and the credentialed person who eventually signs the Form 2848 is often a contractor the customer never meets. Policing deceptive advertising falls to the Federal Trade Commission and state attorneys general, who act after the harm, case by case. The gap between what the IRS can regulate and what the industry does is where the mills live, and it has not closed.

They advertise a result. "Settled for $1,200." "Saved 90 percent." Legitimate representatives cannot know your result before they know your numbers.

They quote a fee before pulling your transcript. Nobody can price your case from a phone call.

They use "Fresh Start program" as a proper noun with a door. There is no such door.

The person you talk to is a salesperson, not the credentialed professional who will supposedly handle your case. Ask for the name and license number of the person who will sign your Form 2848. If they cannot tell you, hang up.

They want the entire fee up front, often thousands, often on a credit card, often with a sense of urgency that the IRS will act tomorrow. The IRS rarely acts tomorrow, and anyone who tells you it will is using your fear as a closing technique.

They guarantee an outcome. Circular 230 prohibits practitioners from guaranteeing results, and no honest one would.

They are hard to reach after the payment clears. The salesperson's extension stops working. The case manager changes.

They do not mention the collection statute, the five-year compliance rule after an offer, the effect of a rejected offer on your deadlines, or the possibility that you do not qualify. Omission is the tell.

If you have already paid one of these companies, stop paying, request your file in writing, check whether a Form 2848 was ever filed in a licensed person's name, pull your own transcripts to see what if anything was submitted, and consider a complaint to the Federal Trade Commission and your state attorney general. Then start over with the test above. Robert did, and the second time cost him nothing.

The questions to ask before you hire

I would ask these in order, and I would not hire anyone who could not answer all of them.

1. What is your credential, and what is your license number? Then verify it: the IRS maintains a public directory of enrolled agents and other credentialed preparers, state bars list attorneys, and state boards list CPAs.
2. Who will actually work on my case, and will that person's name be on the Form 2848?
3. How many collection cases like mine have you handled in the last year?
4. What will you do first, and what will it cost? The right answer involves transcripts and an assessment before any resolution is proposed.
5. Based on what I have told you, what do you think my options are, and what do you not know yet? A good representative will decline to promise anything and will tell you exactly what they need to find out.
6. How do you charge, and what happens to the fee if the IRS rejects what we submit?
7. How will you communicate with me, and how often?
8. What do you need from me, and by when?

The appendix includes this as a worksheet you can take to a consultation.

What a good engagement looks like

You sign a Form 2848. Within a week or two the representative has your transcripts, has computed your collection deadlines, has identified your unfiled years if any, and has run your financial statement. You get a conversation or a memo that says: here is what you owe and why, here is what the IRS can do and when, here are your realistic options, here is the one I recommend and why, here is what it will cost, and here is what I need from you.

Then the work happens, and you hear about it. Deadlines are met. The IRS talks to your representative instead of you, which for most people is the single greatest relief of the whole engagement. When something is submitted, you get a copy. When something is decided, you hear the same day.

Your job does not disappear. You provide documents promptly. You keep paying anything you have agreed to pay. You do not call the IRS on your own without telling your representative, because two people giving the IRS different information about the same case is how agreements fall apart. You stay in filing compliance. And you read what you sign, because the financial statement is still yours and still under penalty of perjury.

When to fire one

If deadlines are being missed. If the IRS tells you there is no power of attorney on file. If you cannot get a return call within a few business days. If you are being asked for more money without an explanation of what the first money bought. If you discover that something was submitted in your name that you did not see.

Firing a representative is a letter revoking the Form 2848, which you can also do by filing a new 2848 for someone else, and a request for your complete file, which you are entitled to. Do not let loyalty to a bad fit cost you a deadline. The IRS does not care who dropped the ball. It only sees that it was dropped.

The last word on this

I have spent a chapter on how to find help, so let me end with the other half.

Most readers of this book can resolve most of their own tax problems with the information in it, a few hours on the phone, a completed financial statement, and a communication log. The system is slow and bureaucratic, but it is not secret, and the people on the other end of the line are working from the same manual your representative would be. What a good professional adds is experience with the patterns, a cooler head in the conversation, and the credibility that comes with a credential. That is worth paying for in a hard case. It is not necessary in a simple one, and nobody should let the fear of the IRS, or the commercial exploiting that fear, convince them otherwise.

That ends Part IV. You know what a lien does and how to get out from under it, what a levy reaches and when the IRS must release it, how to use the hearing most people never request, how payroll taxes change the rules, and how to tell a representative from a salesperson.

Part V is about the end of the process and what comes after: the negotiation itself, the seven stories brought together, the year after resolution, and the question of who you are once the debt is gone.