There are organizations that advertise on late-night television promising that they can reduce your tax debt. For a fee, of course. They don't say on what basis they can reduce it, and they don't ask what your circumstances are. But they imply massive reductions - 80 or 90 percent. Sound too good to be true? Well, yes, it is, as any Orange County tax attorney could tell you.
But that hasn't stopped desperate taxpayers with enormous back taxes from paying big fees up front and getting nothing in the way of tax relief. The Federal Trade Commission estimates that twenty thousand people have turned to American Tax Relief of Beverly Hills, Calif., to reduce their back taxes after seeing the company's advertisements on television, the Internet or in print. In the ads, actors portraying clients say the company reduced their back taxes to say, $2,000 from $24,000 or $40,000 from $200,000.
The company has collected $60 million to $100 million in upfront fees, but rarely - if ever - delivered on its promises.
According to the F.T.C., though, the company did deliver $30 million in customers' funds to the accounts of the company's owners or their relatives. And then spent it on a $3.4 million house in Beverly Hills; a garage full of cars, including a Ferrari, a Rolls Royce, a Bentley, two Porsches and two Mercedes-Benzes; as well as other luxuries.
A federal district court judge froze the assets of American Tax Relief and its owners on Sept. 24 and appointed a receiver to manage the company. The judge also approved a temporary restraining order prohibiting the company and its owners from making deceptive claims. The F.T.C. does not have criminal jurisdiction or the ability to assess fines.
C. Steven Baker, the director of the F.T.C.'s Midwest Regional office, said recently, "Everyone has seen these commercials and wondered, 'Can I really get away with paying the I.R.S. only a fraction of what I owe?' The short answer is no."
The F.T.C. has not been able to find a single client that had their tax debt reduced by American Tax Relief -- and that is out of 20,000 clients.
It is true that the IRS has programs of the type pitched by American Tax Relief -- an "offer in compromise" settlement and a "penalty abatement" -- the government is likely to accept less than it is owed only if the taxpayer makes an offer that is equal to or greater than the taxpayer's ability to pay, including the value of all of the taxpayer's property, cars, bank accounts and other assets.
Source: New York Times "F.T.C. Accuses Tax Relief Company of Empty Promises" 10/7/2010