One of the scariest types of correspondence that a small-business owner can recieve is a request from the IRS for more information. In many cases, this could lead to an audit which requires payment of back taxes, interest and penalties. In some cases, the amounts can reach tens of tousands of dollars or more. If your business is going through a rough patch and can't afford to pay the IRS what is owed, then some people throw their common sense out the window and look for a magic solution. Enter TaxMasters.
TaxMasters is one of many companies that promise to represent you in cases involving the IRS and back taxes. As Claudia Buck reports for The Sacramento Bee, the company charges thousands of dollars in upfront fees in exchange for "eliminating" most or all of your debt to the IRS. If you owe $80,000 in back taxes, paying a $4,000 upfront fee to make that problem go away sounds like a bargain. The only problem is that the whole thing is a sham. TaxMasters is embroiled in a quandry of legal probelms which lead to its filing for bankruptcy. The company took payments from customers but failed to offer even a minimum level of service. In many cases, they did absolutely nothing for their clients as interest and penalities added thousands of dollars to their liability. TaxMasters isn't alone; the notorious Tax Lady Roni Deutch faces similar accusations and was successfully sued by California and ordered to pay $435 million in refunds to customers.
These companies take advantage of a taxpayers' desperation and fear at a time when they are vulnerable. The reality is that if you owe money to the IRS, you must work out an agreement with them to pay it back. If you are truly broke, then it is possible to negotiate an Offer In Compromise (OIC) which is basically a negotiated settlement to pay back a portion of what you owe and have the rest forgiven. These are rarely granted and when they are, typically take a year or more for approval. In the meantime, the IRS will require proof of how you are spending your money to ensure that you aren't pretending to be broke.
The best way to avoid a problem with the IRS is to pay what you owe and to keep miticulous records. It's not easy, but you will be able to sleep at night.
[The Sacramento Bee]
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