In recent years, several large tax-relief companies have closed after authorities accused them of deceptive practices. Roni Deutch, who called herself the "Tax Lady," shut down her practice after California's attorney general alleged her company swindled thousands of people by taking large upfront payments while providing little or no help in lowering clients' tax bills.
The IRS offers a number of options if you owe and can't pay. You can pursue the options yourself. In just minutes, you can set up an online payment agreement for up to 72 months if you owe $50,000 or less in combined tax, penalties and interest. Go to www.irs.gov and search for "Online Payment Agreement Application." You can also request a payment agreement by filing IRS Form 9465.
"We work with people all the time to get them back in the system," said IRS spokesman Eric Smith. "Chances are you don't need to pay somebody. You may be able to do a lot of work on your own. When you see the ads for people saying they can solve your tax debt for pennies on the dollar, many of those kinds of operations are not providing good service to people."
You can also try to get the IRS to reduce your tax burden by asking for an "offer in compromise," or OIC. This allows the IRS to accept less than the full tax payment under certain circumstances. If you're in great economic hardship, you may qualify for an OIC. But you first have to provide detailed financial information to prove your economic situation and you have to exhaust all other payment options. The IRS received 64,000 offers in compromise during the fiscal year that ended last September and it only approved 24,000, an acceptance rate of 38 percent. You can use the IRS' OIC pre-qualifier tool on its website to check to see if you're eligible.