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Lessons learned - the hard way - from TaxMasters

Our readers in Fort Worth have no doubt been following the story of the bankruptcy filed by Texas-based TaxMasters. The company's founder was a well known pitchman in television ads on a number of cable news channels. If you owed money to the IRS, TaxMasters could help you deal with the IRS -- or so they claimed.

The company became news when it filed for bankruptcy. In addition, a number of consumer complaints also led to charges in Texas and Minnesota of deceptive business practices. In Texas, a jury heard testimony for several days and ruled against TaxMasters and its CEO. The jury decided on a penalty of $195 million, much of it to be awarded to former customers. Many who trusted the company to help them with their IRS debt may receive partial compensation.

Trusted sources recommend several approaches, other than trusting a TV pitchman, to handling back taxes owed to the IRS.

  • Offer in compromise, an option to pay less than the total amount owed, works for some people. In 2010 the IRS received compromise requests from 57,000 people and granted 14,000 of them.
  • Some taxpayers enter into an agreement to pay the full amount over an extended period of time. This is an option for those owing $50,000 or less.
  • The IRS has taxpayer advocates who can help taxpayers navigate the IRS bureaucracy and potentially work out a payment plan or a compromise.
  • Taxpayers could hire a qualified legal professional or enrolled tax agent for representation when dealing with the IRS. For those in serious trouble, this may be their best option.

The IRS treats back taxes very seriously and will use every means at its disposal to collect the taxes, penalties and interest that it determines are owed.

Source: Forbes, "Owe The IRS? TaxMasters Bankruptcy Shows Why Not To Get Help From TV Pitchmen," Janet Novack, March 18, 2012

Source: Reuters, "Texas jury slaps $195 mln penalty on TaxMasters, CEO Cox," March 30, 2012

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