Maria Garcia never dreamed she would land in so much trouble with the IRS. But a few years ago, she found herself owing about $32,000 in back taxes — a situation she says was partly caused by a family member fraudulently using her name and Social Security number for work.
Desperate for help, Garcia turned to TaxMasters, one of the many “tax relief” companies advertising heavily on TV, radio and the Internet.
“I’d run into tax problems, and their advertising was enticing,” said the Roseville, Calif., resident and mother of four adult children. “Needless to say, it was a fiasco. They prey on your fears of the IRS coming and taking what little you have: my car, my wages.”
After paying about $4,000 in upfront fees — and giving the company power of attorney to represent her before the Internal Revenue Service — Garcia thought her problems were over. Instead, they just got worse.
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Months went by without any resolution. Meanwhile, the IRS tax penalties and interest kept climbing. After a year or so, Garcia owed more than $42,000.
“Every time I emailed (TaxMasters), they said: ‘We’re working on it.’”
In March 2012, the company, Texas-based TaxMasters Inc., filed for bankruptcy, leaving thousands of hapless taxpayers, including Garcia, in worse shape than when they started.
Every year, as the tax season closes, many Americans are unable to pay their full IRS bill or resolve their past-due obligations. These folks are often the target of “tax relief” companies.
As the economy perks up, many of these companies actually drum up more business, said Gary Almond, president of the Northeast California Better Business Bureau. “As the economy improves, some (consumers) want to resolve their past debts. They now may have equity in their home to resolve debt. Or they want to refinance their mortgage and need to settle their tax liens. Or they’ve become employed again and find that their wages are being garnished.”
While plenty of legitimate companies offer tax help to struggling consumers, a number of unethical companies, especially those charging high upfront fees, prey on unsuspecting taxpayers.
On its website, the Federal Trade Commission warns against companies charging upfront fees while claiming they can “reduce or even eliminate” tax debts.
“The truth is that most taxpayers don’t qualify for the programs these fraudsters hawk, their companies don’t settle the tax debt, and in many cases don’t even send the necessary paperwork to the IRS,” notes the FTC’s website.
In all cases, consumers should be wary of too-good-to-be-true claims.
“Some of these ‘effectiveness’ claims should be taken with a grain of salt. Everyone’s case is different; there are no blanket guarantees,” said the BBB’s Almond.
To avoid getting defrauded by an unsavory company, do your homework, say state and local officials. Check with the Better Business Bureau or appropriate state agency for a company’s record.
“With anybody who requires an upfront fee for a service they can’t guarantee, run,” said Mark Leyes, spokesman for the state Department of Corporations.
Currently, the IRS and its Taxpayer Advocate Service are working to resolve tax debts of former TaxMasters clients such as Maria Garcia.
Garcia, who works full time at a warehouse store, says she now wishes she had gone directly to the IRS for help. Her recent 2012 tax refund — $300 — went straight to the IRS for repayment.
Looking back, “I made mistakes,” Garcia said. “I thought I could fix it on my own. And I couldn’t.”