The Best Tax Debt Relief Services of 2021

Businesses can leverage a tax debt relief service's legal prowess to potentially find a solution to their tax debt woes. Tax debt relief companies usually work to address the problem by taking the following steps:

1. Collect information. By closely researching your tax debt problem, as well as your small business's cash flow and other important factors, the service will grow to understand exactly where you went wrong and how to fix the problem.

2. Prepare and send relevant paperwork to the IRS. This effort is done in a bid to find a way to compromise with the government agency.

3. Negotiate. In the third – and, hopefully, final – step, the company's tax professionals sit down with IRS representatives to negotiate a way to ease your company's tax debt problem.

A good tax debt relief company has representatives on hand to carefully assess your situation before coming up with a plan to alleviate your debt with the IRS. It's vital to address the problem quickly, so a good company will work with you to strategize an effective course of action.

Keep in mind that, if you do not meet the IRS' criteria for negotiating certain tax debt relief options, you won't be able to get help from any of the tax debt relief services on our list.

When you're deciding which tax debt relief company to use, consider how you want to deal with the IRS. In addition to offer-in-compromise (OIC) and payment plan options, most companies provide other avenues for tax debt forgiveness. Here are some of those options:

Innocent Spouse Relief

Most married couples in the United States file a joint tax return with the IRS. While that filing status generally comes with some benefits for the couple, it can also bring on some liability for either individual. Certain cases, such as when a spouse fails to properly report income or claims incorrect deductions or credits, can cause financial harm to the other individual. Innocent spouse relief helps to protect an individual from their spouse's mistakes.

Separation of Liability Relief

Most tax debt relief companies can help divorced people deal with the financial missteps of their ex-spouse. In this instance, the IRS allows for the "separate allocation of additional tax owed" between the two individuals. Both parties must either be legally separated from or not living with each other to qualify for this type of relief. Further, you are responsible for the amount of tax allocated to you.

Equitable Relief

When neither innocent spouse relief nor separation of liability relief applies to anything not properly reported to the IRS on a joint return, you can try to seek equitable relief. To be considered for this option, the issue must be attributable to your spouse. According to the IRS, you may also qualify for this option "if the amount of tax reported is correct on your joint return but the tax wasn't paid with the return."

Currently-Not-Collectible Status

If you are financially unable to repay your tax debt, you may qualify for currently-not-collectible (CNC) status. Rather than an absolution of your tax liability, CNC is more of a reprieve from the IRS' collection efforts. Under this agreement, you will stop receiving letters and phone calls while you work to get things under control. To qualify, you must prove your financial hardship to the IRS. You do that by sharing your financial information with the government, including any savings accounts or other potential assets. Without any assets to repay the debt, the IRS will need to document your average monthly income and living expenses to determine if an installment agreement would be better.

You may also be required to file a financial statement and potentially prove your income and expenses. Further, the IRS limits your monthly expenses. Any tax refunds will go directly toward paying back your debt, and you will likely get penalized with a federal tax lien if your debt is over $10,000. If you become able to repay your debt, you will lose CNC status. If, however, your financial situation remains the same for 10 years, the IRS will write off your debt.

Federal Tax Lien/Levy Assistance

If you've failed to pay your taxes and ignored the problem for some time, chances are, you have been threatened with or been the subject of tax liens or levies. Levies and liens are the federal government's way of ensuring it gets the money you owe. If you are hit with a tax levy, the IRS can garnish your wages, withdraw funds from your bank accounts, garnish your Social Security and seize your property, though the last option is usually for the most egregious tax dodgers.

Tax liens, however, originate from overdue property taxes or failure to pay taxes. Liens generally affect real estate and personal property more than your bank account. If you have a tax lien, your credit score will take a hit, and your ability to get a loan or refinance your mortgage will be severely hampered, among other issues. Tax debt relief companies negotiate with the IRS to lift levies or liens while you get everything in order.

Penalty Relief

If you can't pay the penalties, some tax debt relief services will work to have those fees reduced or removed. Penalties can be incurred if you fail to file your taxes, pay late, or don't deposit your taxes before the deadline.

Audit Representation and Tax Preparation

If you or your business are being audited, most tax debt relief companies will provide legal representation. Additionally, some tax debt relief companies offer a tax preparation service aimed at ensuring you do not run afoul with the IRS again.

With so many tax laws to navigate when dealing with the IRS, it might make sense to hire a tax debt relief company regardless of how much you owe. That said, while these companies are staffed with experts who know the inner workings of the IRS, individuals acting on their own behalf can still reach agreements with the government for free and without representation.

Started back in 2008 and expanded in 2012, the IRS Fresh Start initiative is a government program that gives individuals and business owners with up to $50,000 in back taxes a chance to resolve their debt directly with the IRS. Through the program, tax debtors can establish a payment plan with the IRS to spread out repayment over time, rather than all at once. How much you would repay each month is based on your current income and the net value of your liquid assets. The program allows individuals with tax debt problems who have been unemployed for more than 30 days to request a six-month filing extension with no penalty.

The Fresh Start initiative also gives individuals the option to enter an OIC agreement to settle the debt for less than the tax originally owed. To be approved for an OIC, you must prove you cannot pay the full amount owed and that the settlement amount you are offering is greater than the funds the agency can collect.

Along with Fresh Start, the IRS offers a free Taxpayer Advocate Service (TAS), which is open to anyone living in the U.S. If you have tried to settle matters with the IRS yourself and have come up empty, the TAS (which is run by an independent organization within the IRS) may be able to assist you. To see if you qualify, fill out the TAS acceptance tool.

Whether either of these DIY options is right for you depends on your individual case. If the amount of money you'd owe to a tax debt relief company is more than your initial debt, look into the aforementioned options and contact the IRS.

Remember that no matter which tax debt relief company you choose, the price of the services will rely heavily on the complexity of your case. With that said, here are some steps to take in your search for a tax debt relief service.

Request a consultation. The tax debt relief service should be willing to provide you with a consultation regarding your particular situation. By learning the ins and outs of your predicament, the tax professionals can better serve you and provide you with a more accurate estimate of how long and costly the process will be. Be sure to look for a company that will provide a cheap or free consultation.

Consider the services offered. There are several ways tax debt can be resolved, and each method relies on specific criteria. Look for a service that has expertise in as many of those methods as possible.

Ask how a company's professionals will determine which program will work for you. Because each IRS tax debt relief program has rules and criteria, make sure the company's professionals will do everything they can to find an option that works for your case.

Find out which type(s) of tax professionals the company has on staff. According to U.S. tax law, only three types of professionals can negotiate with the IRS on your behalf: CPAs, enrolled agents, and tax attorneys. The best tax debt relief services have all three types of professionals available in-house.

Look into the customer service. Once the process has started, you won't just be able to take it easy; you will be an active participant in the process by working with the professionals handling your case. You will want a company that has easily accessible and affable customer service agents who will help you through your problems and answer any questions you may have.

There are plenty of legitimate services trying to help individuals and small businesses alleviate their tax debt problems. Yet when there's vulnerability and money involved, there's very likely to be some sort of scam around the corner. Being in debt with the IRS can make you nervous and desperate, so scammers will use that fear to push you into bad decisions.

The problem has become so pervasive that the Federal Trade Commission (FTC) is warning people about the risks. According to the FTC, the following indicators should serve as red flags:

• Demanding that you pay before even starting the process
• Promising absolute debt resolution or major reductions
• Saying they will get penalties forgiven
• Not properly looking into your company's finances
• Delaying your tax debt relief case
• Saying you don't qualify for tax debt relief after you've been paying for their service for a long time
• Claiming they can slash your debt to "pennies on the dollar"

If you owe back taxes, the FTC suggests that you carefully read your IRS and state tax notices before asking for debt collection options. The FTC also warns against using any business that promises any kind of solution, as only the IRS can make that determination.

Openly admitting that your business had tax debt problems in the past can be a difficult proposition. We normally ask members of the small business community to share the services they have used, but in this case, we decided to instead ask how they would choose a tax debt relief service.

David Baddeley, director at Scottish Trust Deed, said the general consensus among his business friends is that Anthem Tax Services is the one to choose.

Anthem Tax Services is the "most guaranteed company to be able to help you, no matter what your situation is," he said. "Some of the other lenders need you to have a minimum or maximum amount of debt, which can be hard to navigate. For this company, you are guaranteed to get help without a lot of the hassle that some other companies may ask you."

Thomas Fultz, CEO and founder of Coffeeble, said small business owners need to "be able to see a brighter future" for the money they would have lost on tax debt. He pointed to ALG Tax Solutions as a service one of his friends used to great success.

"If you are looking at the total [debt reduction] and it doesn't seem like much of a help, you need to keep looking," he said. "A tax relief service will have some high APRs, and the monthly payments should be small and manageable. They have to take into consideration the type of people who are coming to them and the type of payment plans they would need."

How Can You Tell if a Tax Debt Relief Company Is Legit?

In determining whether a tax debt relief company is worth your time and won't lead to more problems in the future, time is your friend. For years, the FTC has worked to root out fraudulent tax debt relief companies. The longer a company has been in operation, the less likely that it's a fraud.

It's also beneficial to look up the company's rating with the Better Business Bureau, where you can see how a company fares in the industry and any complaints leveled against it by consumers.

Do You Want to Settle Your Tax Debt in Full?

The answer to this question depends largely on your individual financial situation. If you can pay in full, the IRS will make sure you do. To make that determination, the agency takes your monthly income, your assets and other factors into account. If you can't pay it in full with one payment, it might be a good idea to reach out to a tax debt relief company to negotiate a payment plan with the IRS.

In certain cases, a tax debt relief service will negotiate with the IRS to settle your debt for a smaller amount. This process, known as the offer in compromise (OIC), is a very specific solution with many requirements. If you do not meet those requirements, you will not be approved for an OIC.

Can You Negotiate Debt With the IRS?

Depending on your situation and the amount you owe, it is possible to negotiate directly with the IRS. Some tax debt relief companies will suggest you handle it yourself instead of using their services, since their costs could exceed what you owe to the government. In those cases, a representative will at least point you in the right direction.

Since the U.S. tax code is so cumbersome, it may be in your best interest to hire a tax debt relief company to negotiate in your stead. Only certified public accountants, enrolled agents and tax attorneys can represent you in front of the IRS.

How Far Back Can the IRS Collect Unfiled Taxes?

The IRS has a long memory when it comes to the money you owe. Generally, the IRS has three years to audit you and determine whether you owe more taxes. If it feels you have committed fraud or other criminal tax activities, it could extend the statute of limitations for audits. If the IRS believes you underreported more than 25% of your gross income, or if the same amount was underreported in an estate or gifts given in a year, the agency can audit you within six years. If you are found to owe taxes to the IRS, the agency has 10 years to collect any unpaid taxes.

When Are the Best Times to Contact a Tax Debt Relief Service?

It's never a great time to contact a tax debt relief service, because that means you're in trouble (or about to be) with the IRS. Still, if you have a massive past-due tax bill and think you need professional help, you should absolutely reach out. An unpaid bill can balloon quickly, thanks to penalties and fees levied by the IRS, so reaching out for help from a tax debt relief service is one way to deal with the situation.

You should also consider a tax debt relief service in the following situations: you want to seek an OIC to have your debt forgiven, there's a lien on your business or personal property or you want to establish an affordable tax debt repayment plan. Tax debt relief services can act as a middleman between you and the government, with the ability to facilitate negotiations.

Who Might Need Tax Debt Relief?

If you're having any issue with unpaid back taxes, liens on your property, wage garnishments or related issues, you need a tax debt relief service. If you're just having trouble filing your taxes or facing some other tax issue not related to debt, you should not seek assistance from a tax debt relief professional.

Does the IRS Forgive Tax Debt After 10 Years?

The IRS may not want the general public to realize this, but the agency has 10 years to collect on any debts it's owed. Known as the Collection Statute Expiration Date (CSED), this mandate requires the IRS to expunge any tax debt after a decade. While that may seem clear cut, the IRS won't sit idly by if you try to wait it out for 10 years. Over time, the agency's debt collection efforts will become increasingly aggressive, with wage garnishments, tax liens, and other tactics firmly on the table. Additionally, your CSED can change, since there are provisions to let the IRS pause and restart the process if necessary.

Does the IRS Forgive Tax Debt?

Though the IRS is widely seen as an antagonistic government agency, it does have programs in place to alleviate the tax debt problem for some. Measures such as the OIC can start the forgiveness process. For example, your tax debt could be forgiven if it's deemed to have low "realistic collection potential," meaning it's very unlikely for the debt to be paid because you have a low income, no assets to seize and sell, and no way to make the payments. The IRS has other tax debt forgiveness measures, but the eligibility requirements are stringent.

What is the Minimum Monthly Payment for an IRS Installment Plan?

When you settle your tax debt through an IRS installment plan, the amount you owe greatly influences how much your minimum monthly payments will be, since the IRS suggests that you pay as much as you can to lessen the sting of additional penalties and interest. However, the IRS also considers the nature of your debt and the agreement behind the repayment plan.

Though the IRS lets its debtors select their own monthly payment amount, that's not necessarily how much they will have to pay. If a debtor doesn't select a monthly payment amount, sets the bar too low, or lets the IRS decide, the payment amount defaults to the owed amount divided by 72 equal monthly payments.

What Can the IRS Do to You When You Have Tax Debt?

If you're in debt to the IRS, you have likely already begun facing the consequences, starting with numerous notices. If you've ignored those notices, you will immediately be placed into collections, at which point your bank accounts and wages can be levied by the federal government.

Additional punitive actions that the IRS can take against you and your business include confiscating your tax refund as payment, charging additional interest on your tax bill, and hitting you with additional penalties, like the "failure to pay" penalty. Ultimately, the IRS can file a notice of federal tax lien against you, meaning future creditors will know about your tax debt, thereby ruining your ability to sell or borrow against your assets.

Furthermore, the government can seize your money and assets, meaning the government can levy those items and sell them to pay off the debt. This rarely happens, though, given the difficult process that such an action requires.

Ultimately, you could be barred from leaving the country, and your debt could be handed over to a collection agency, at which point you will likely be hassled by collectors to settle the debt.

Does settling your tax debt with the IRS affect your credit score?

Like most debt, your tax debt does affect your credit score. Though unpaid taxes haven't directly hurt credit scores since April 2018, tax debt will harm your credit score if the IRS files a notice of federal tax lien against you, since that will be reported to the three credit bureaus. In any case, you will receive plenty of notice from the IRS before your credit score is affected.

How much will I pay a tax relief company for its services?

Most tax debt relief companies charge an upfront fee. Each of our best picks charge a flat fee, but prices vary based on your situation and its complexity. If your case is complicated, it will take more hours and thus cost more.

Based on business.com's research, the cheapest tax debt relief service we found cost $1,500, while the most expensive was $4,250.

What are the signs of a tax relief scam?

Scammers abound in the tax debt relief market –  you have to be savvy when hiring a firm. You don't want to shell out money and not get help in return. There are several telltale signs that can clue you in as to whether a company is running a tax relief scam.

• The company requests a large, upfront payment. No reputable business should charge you a large, upfront fee for services not rendered. They may require an initial payment, but not a huge one.

• They make misleading representations. Many scammers find their victims by sending unsolicited emails, texts and letters that appear to be from a government entity such as the IRS. They may claim you qualify for a government program to settle your debt. Before paying money to a tax debt relief company, research them thoroughly, rather than respond to an unsolicited email or text.

• The messaging is too good to be true. A lot of fraudsters appeal to your need for immediate help. If the company claims to settle debt for pennies on the dollar, slash what you owe by impressive amounts, or remove penalties and interest, that should raise a red flag.

• The agency conducts little due diligence. A telltale sign that a tax debt relief company is not legitimate is how it handles your case, or more precisely, that it doesn't handle your case. If it fails to assess your financial background and/or doesn't inquire about why you owe taxes, alarm bells should go off.

We researched multiple tax debt relief companies, taking note of the services they provide, any additional fees they may charge, and how trustworthy their business really is, among other considerations. We started by compiling a list of vendors. In addition to the options we were already familiar with from past reviews, we considered other companies we found during our research, as well as services that appeared regularly on other reputable online lists and reviews. In some cases, we also looked at companies that reached out to us asking to be considered for review.

After compiling our list, we visited each vendor's official website, taking note of what they had to offer. After eliminating companies that we felt didn't make the cut, we reached out to our finalists while posing as a small business owner with tax debt problems. We asked everyone the same set of questions when applicable while considering the features, potential costs, and quality of the service we received.

Finally, we chose our top picks by considering which tax debt relief companies struck the best balance of price, solutions, and customer service. Here are the main criteria we used to evaluate each option:

• Pricing: The costs surrounding tax debt can already be a major burden on a small business. If a service costs too much, it's hard to justify that service as a way of getting out of tax debt. As such, this was one of the most important aspects of our research phase. 

• Services: There are a number of ways to handle tax debt (such as offer in compromise or separation of liability relief), and your particular situation determines which potential route applies to you. Vendors with limited options were immediately cut from consideration. 

• Tax professionals: By law, the government only allows enrolled agents, tax attorneys, and CPAs to directly negotiate tax debt relief with the IRS. To be considered a best pick, our finalists needed to have all three types of professionals working in-house. That way, there would be no need to hire a third party and thus incur additional costs. 

• Experience: Although we did not explicitly point this out in our reviews, we paid attention to how long a company had been in business. The U.S. federal tax code is a complicated living document. If a company has been around through multiple changes, it has a deeper knowledge of the ins and outs of tax debt relief.