Reviewing An App That Prevents Tax Scams

September 4, 2013 12:20 pm0 commentsViews: 63

By : Jose Alfaro

tax_scam2If you live in the US, then sure you have heard about all those ads which offer you the opportunity to kill all your tax debts with one single operation, haven’t you? Yes, those which promise you will pay “pennies on the dollar” —that’s right. Well, after so many reports indicating the opposite and considering even the IRS warning about tax scams (see further instructions on how to report tax scammers here), I decided it was wise to hold the horses, so to speak, and study the case a little better.

The first thing I found is that some estimates throw that more than half Americans are in certain tax debt situation. That’s a pretty large number and a pretty tempting market for tax scammers, certainly.

Yet, the “pennies on the dollar” offer is not the scam, per se. As a matter of fact, it is a good marketing way to speak about the Offer in Compromise, a settlement you can reach with the Internal Revenue Service and which allows you to tell them, “Listen, IRS guys… I know I owe you X but I can only pay you Y, now. So here, I offer you Y now. Accept it and let’s forget about the debt, OK?”  What happens next is that the IRS evaluates your offer and either accepts or declines it. If they accept, they take your money and forget the rest of your debt, giving you what they call a Fresh Start.

And, in some cases, that debt reduction has reached 70% in the past.

Sounds serious thing, huh?

tax_scam1OK, where is the scam, then? The scam is that the Offer in Compromise program has a number of legal requirements. Honest tax preparers will review your case against the Offer in Compromise rules first, and charge you for preparing the application after they see you qualify. On the other hand, unethical thieves disguised as tax professionals, will not even check. They will tell you they are certain you are eligible for the Offer in Compromise program and that all you need to do is to pay them mere US$5000 so they can prepare the application for you and file it before the tax authorities.

What happens next is that the scam victims pay and the documents are filed, but the IRS does not approve their offers because the applicants do not meet the legal requirements. The scam is consummated.

Pretty smart, huh?

Well, once you learn about this, you think there must be a way to know if you qualify or not to avoid scams. Searching online, I found two tools that might be useful: One is the somewhat renown PitbullTax tax resolution application which is a niche service aimed at (and probably understandable by) tax professionals. Besides that, I found a small iPhone app called the Offer in Compromise Calculator that promises to do the same evaluation that an honest tax professional would, but just at $10 bucks. I gave the latter a go and here are my findings:

  • The app will not win any design contest, but it works: it offers you an extensive questionnaire about your income, tax debt and expenses, which you can fill in comfortably at home.
  • The questionnaire was easy to understand and straightforward.
  • You take about 20 minutes to fill in all the questions and press “next”.
  • Once you press that final “next” you learn if you qualify for the Offer in Compromise settlement instantly, which is good.
  • Not just that, if you qualify, you get the exact sum of money you need to offer the IRS to qualify for the agreement and legally be approved.
  • Yes, I tried the app twice to see both positive and negative results

According to the developers, the application is private. I can attest that it did not require my e-mail, name or any other personal information, rather than my ZIP code so it seemed they fulfilled their word.

If you want to check yourself, here you see a video of the app working.

To get a copy, visit the AppStore.

Jose Alfaro is one of the co-founders of PitBullTax Software, a tax resolution system that allows tax professionals (Attorneys, CPAs and Enrolled Agents) to manage and follow as many tax cases as they need in a robust multi-user platform which includes lots of tools and legal references that ease their job.

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