How is the Tax Resolution Industry Regulated?

The tax resolution industry is largely unregulated. There is, however, a patchwork of laws that provides some oversight.

This includes Circular 230, which sets forth ethical and professional standards that tax practitioners, including tax resolution companies, must follow when representing clients before the IRS. Additionally, tax resolution companies must comply with the Fair Debt Collection Practices Act (FDCPA) when engaging in debt collection activities on behalf of their clients. Some states also have their own laws and regulations governing tax resolution firms.

Clients should be aware of these regulations and file complaints with the appropriate regulatory agency if they believe a tax resolution company has violated any of these rules.

About the Tax Resolution Industry

The tax resolution industry provides assistance to taxpayers who have issues with the IRS, such as back taxes, audits, or other tax-related problems. Tax resolution companies typically offer a range of services, including negotiating with the IRS on behalf of clients for installment agreements and settling back taxes, preparing and filing tax returns, and resolving tax liens and levies.

Those who work in the tax resolution industry can include tax attorneys, certified public accountants (“CPAs”), enrolled agents, and other tax professionals. These professionals may have varying levels of education and training, ranging from a bachelor’s degree in accounting or finance to a law degree or advanced certification in tax law or accounting.

Exact numbers on the size of the tax resolution industry and the number of people working in it are difficult to determine, as there is no specific industry classification for tax resolution firms. However, it is estimated that there are thousands of tax resolution companies operating in the United States, with varying sizes ranging from small, independent firms to large, multi-state operations.

To work in the tax resolution industry, tax professionals typically need to have a thorough understanding of tax laws and regulations, as well as experience in dealing with the IRS and resolving tax-related issues. Some professionals may also have specialized training in tax resolution, such as completion of a tax resolution certification program or continuing education courses in tax law and practice.

Circular 230

Circular 230 outlines the ethical and professional standards that must be followed by all tax practitioners, including those who provide tax resolution services.

Circular 230 applies to tax resolution companies and requires them to follow ethical and professional standards in their practice before the IRS. Specifically, Circular 230 sets forth rules that govern the conduct of tax practitioners when representing clients before the IRS, including tax resolution companies.

Some of the key requirements outlined in Circular 230 include:

1. Competence: Tax practitioners, including tax resolution companies, must possess the necessary knowledge and skills to provide competent representation to their clients.
2. Diligence: Tax practitioners must act diligently and promptly in representing their clients before the IRS.
3. Integrity and Ethics: Tax practitioners must maintain high standards of integrity and conduct themselves ethically in all aspects of their practice.
4. Confidentiality: Tax practitioners must keep all client information confidential, unless authorized by the client to disclose it or required by law to do so.
5. Fees: Tax practitioners must charge reasonable fees for their services and may not charge contingent fees based on the outcome of the tax matter.

If a tax resolution company violates any of the requirements set forth in Circular 230, they may be subject to disciplinary action by the IRS, including censure, suspension, or even disbarment from practice before the IRS.

If a client wishes to file a complaint against a tax resolution company for violating Circular 230, they may do so by filing a complaint with the Office of Professional Responsibility (“OPR”) within the IRS. The OPR is responsible for enforcing the regulations set forth in Circular 230 and investigating complaints against tax practitioners, including tax resolution companies. Complaints can be filed online through the OPR’s website, by mail, or by fax.

Once a complaint is received, the OPR will review the information provided and conduct an investigation into the matter. If the OPR finds that the tax resolution company has violated Circular 230, it may impose sanctions, such as censure, suspension, or disbarment from practice before the IRS.

The Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (“FDCPA”) regulates the behavior of debt collectors, including tax resolution firms, and prohibits certain abusive practices.

The FDCPA is a federal law that regulates the behavior of debt collectors and provides guidelines for how they must interact with consumers. Although the FDCPA was designed primarily to regulate the behavior of third-party debt collectors, it also applies to tax resolution companies that engage in debt collection activities on behalf of their clients.

Under the FDCPA, tax resolution companies are required to adhere to certain rules when attempting to collect a debt from a taxpayer. These rules include:

1. Prohibiting Harassment: Tax resolution companies may not engage in any behavior that is intended to harass, oppress, or abuse the taxpayer, including using obscene or profane language, threatening violence or harm, or making repeated phone calls with the intent to annoy or harass.
2. Providing Disclosure: Tax resolution companies must provide the taxpayer with certain disclosures, including the amount of the debt, the name of the creditor, and information about the taxpayer’s right to dispute the debt.
3. Prohibiting False or Misleading Representations: Tax resolution companies may not make any false or misleading statements or misrepresent the character, amount, or legal status of the debt being collected.
4. Providing Verification of the Debt: Upon request, tax resolution companies must provide the taxpayer with verification of the debt being collected.
5. Prohibiting Unfair Practices: Tax resolution companies may not engage in any unfair practices, including collecting amounts not authorized by law, attempting to collect a debt that is not owed, or threatening to take action that is not legally permissible.

If a tax resolution company violates any of the provisions set forth in the FDCPA, the taxpayer may have the right to take legal action against the company, which may include suing for damages, reporting the company to regulatory authorities, or seeking an injunction to stop the company from engaging in unlawful debt collection practices.

If a client wishes to file a complaint against a tax resolution company for violating the FDCPA, they may do so by filing a complaint with the Consumer Financial Protection Bureau (“CFPB”). The CFPB is responsible for enforcing the FDCPA and investigating complaints against debt collectors, including tax resolution companies. Complaints can be filed online through the CFPB’s website, by mail, or by phone.

Once a complaint is received, the CFPB will review the information provided and conduct an investigation into the matter. If the CFPB finds that the tax resolution company has violated the FDCPA, it may take enforcement action, including imposing fines or seeking an injunction to stop the company from engaging in unlawful debt collection practices.

State Laws and Regulations

Some states have their own laws and regulations governing tax resolution firms, including licensing requirements, fee limits, and disclosure requirements.

State laws and regulations apply to tax resolution companies operating within those states, and may impose additional requirements beyond those set forth by the federal government. These requirements may vary from state to state, but may include:

1. Licensing requirements: Some states require tax resolution companies to obtain a license or register with the state before providing tax resolution services.
2. Fee limits: Some states limit the amount of fees that tax resolution companies can charge their clients, or require companies to disclose their fees in writing before providing services.
3. Advertising and marketing requirements: Some states have specific rules governing the advertising and marketing practices of tax resolution companies, including requirements for certain disclosures or disclaimers.
4. Recordkeeping requirements: Some states require tax resolution companies to maintain certain records, such as client files and financial records, for a specified period of time.

These laws are typically enforced by the state attorneys general office or other licensing body. They may also be enforced by hiring a private attorney to sue the tax resolution company in court.

The Takeaway

While the tax resolution industry is largely unregulated, there are federal and state laws that provide some oversight and protection for taxpayers. Circular 230 outlines ethical and professional standards that tax practitioners, including tax resolution companies, must follow when representing clients before the IRS. The Fair Debt Collection Practices Act regulates the behavior of debt collectors, including tax resolution firms, when engaging in debt collection activities on behalf of their clients. Additionally, some states have their own laws and regulations governing tax resolution firms, including licensing requirements, fee limits, and disclosure requirements. It is important for clients to be aware of these regulations and file complaints with the appropriate regulatory agency if they believe a tax resolution company has violated any of these rules.