Wall Street Journal: Wiping Out Your Tax Debt Gets Tougher; IRS Tightens Rules, as Firm That Acts as Middleman Settles Cases With 18 States, by Tom Herman:
It's getting harder for taxpayers in debt with the IRS to negotiate a deal to pay a small fraction of what they owe. But turning to a private company for help may backfire: The nation's largest tax-resolution company recently settled with 18 states over allegations that it misled consumers and failed to produce results.
Tax-resolution firms advertise their expertise in getting tax collectors off your back, which can include a compromise deal with the IRS and taking care of state-tax issues. Such pitches may sound particularly appealing these days, with the housing market in disarray and stock prices in a deep slump. But consumers could find themselves out thousands of dollars in fees and still not have a deal.
While the IRS does negotiate with financially strapped taxpayers each year, its "offer in compromise" process is typically very time-consuming and cumbersome -- and the agency rejects most taxpayer offers. It accepted only about 12,000 compromise offers in fiscal 2007, down from 20,000 as recently as 2004. The number of offers received fell to 46,000 in 2007 from 106,000 in 2004. ...
Critics say the program needs to be overhauled. In a recent report to Congress, IRS National Taxpayer Advocate Nina Olson emphasized her concern over "rules and procedures that limit the accessibility and use" of the compromise program.
Many people hire private companies to haggle for them, but that isn't always the best strategy. Besides having to pay upfront fees that can reach into the thousands of dollars, some people contend companies don't deliver what they promised. After receiving numerous such complaints, state officials sued JK Harris & Co., which calls itself "the nation's largest tax resolution company."
Recently, officials announced the company and various entities had signed settlement agreements with 18 states -- including Arizona, California, Florida, Illinois, Massachusetts, North Carolina, New York, Ohio and Pennsylvania -- that include paying consumers a total of $1.5 million in restitution and changing the company's advertising claims.