Full declaration: I own a tax resolution firm. I formed it three years ago when clients came to me after being ripped off by other tax resolution firms. I enjoy representation and decided there had to be an ethical way to enter the market.
I read everything there was to read on how to start a tax resolution company. The allure of summertime money was the motivation behind our plunge into the tax resolution business. Not knowing much about the business, we ended up making about as much as we spent on advertising.
Having been in practice for 22 years, and having represented thousands of clients before the IRS and the US Tax Court, I am good at what I do, but we just couldn’t crack the code and get into the business. Admittedly, we stopped promoting our company, and it just sat there. This year, we decided we were going to give tax resolution another shot. We had radio commercials and Internet campaigns – all with marginal success. Our message was: We know that we are in a nasty business, but we are ethical and will not rip you off.
In March, I took another company’s tax resolution case because I was in the location of the audit and the venue couldn’t be changed. Having never been in the subcontractor role, I guess I behaved in a way that I wished my subcontractors would behave with me. That meant I checked in frequently with the contractor to let them know what I was doing.
Eventually, the contractor got sick of me and pushed me off to their salesman for the case. Apparently, the salesman, who was not an enrolled agent, CPA, or attorney, was the one with the relationship with the client. So, I began working with the salesman.
Dale Carnegie wrote How to Win Friends and Influence People. This book used to be a must-read for any salesperson. In the book, Mr. Carnegie states that when you have said all you have to say, shut up and listen. The problem was the salesman who I was working with loved to talk. Eventually, he told me everything about the case and his discontent with his current employer.
As it turns out, the company I was subbing off of was using the salesman’s outside sales company to generate leads. They provided sales for the tax resolution company, and then after the sale, they provided consigner service to the client. I later found out that this consigner service was a way to upsell the client. The case I was working on started off as a $4,800 case that was upsold so much it ended up being a $28,000 case. The agreement with the tax resolution firm was they split the gross 50/50.
About a month into the case, the salesman approached me about working with his company. He said he had been looking for an exclusive agreement with the current tax resolution company. He had Googled my name, saw that I was well-known and respected, and wanted to work with me. That was when he began telling me everything. He told me they would reel someone in with a partial pay installment agreement for $4,800. He would then send the info to the tax resolution company which would then tell him what more needed to be done, and he would go back and “rewrite” the contract. This rewrite to the contract was basically an upsell in services. He told me that most contracts would end up being $20,000 or more, by the time he rewrote it.
To be honest, I got a little caught up in the excitement of having tax season money year-round. I mean, how bad could it be? You have this outside salesman that calls leads, hooks them, and I perform the service. Then, he handles all of the client communications. I thought this was perfect for us.
We decided to go into the business under a different name other than our brand, so if the salesman did something wrong, it wouldn’t affect us. On the way back from the audit, the salesman and his partner wanted to meet us, so we stopped and had lunch with them.
The meeting started with the salesman stating that this wasn’t a regulated business. That was a warning bell, as I know that tax resolution is heavily regulated. He continued to show me his leads. The other salesman said they would if they saw that the lien was high enough, and he stated that it was OK to call the number if they were giving out information. He went on to say that if he was questioned, he would basically talk his way out of it. That was warning sign No. 2. For every unwanted call, you have a $1,500 fine you have to pay. Eventually, their luck will run out.
They went on to show us, but I refused to look at, confidential client information, such as contracts with the company, Social Security numbers, and things like that. They explained they would reel these clients in and then get them with upsells. The other salesman said he would tell the client that their fee is about 8 percent of their total IRS bill, which is illegal and can’t be done under Circular 230. In fact, on the case I was working on, he stated there was a payment due of $4,800 that he would make sure was diverted to me. That made me uncomfortable because I didn’t want to poach the client. That would be unethical, in my opinion.
Here is the problem: You need to be upfront with a client in the beginning about how much things are going to cost. I usually give clients a range when I am representing them, and then they give me a retainer and credit card info. Unless something drastic happens, I rarely change the contract. That was warning sign No. 3. Did I really want to associate my name and good reputation with a sleazy sales company?
On the way home, we discussed the meeting in detail. She suggested that I call our attorney and see if there was a way to separate ourselves from the sales company. She said it was my license and reputation on the line, and she was right. The next day, I called our attorney who basically shook me and asked, “What were you thinking?” When he repeated back to me my summary, I saw that he was right. It would be too risky to work with these people, and I let the salespeople know.
We are all looking for ways to stay busy after tax season. I know that our accounting practice does a good job of earning summer money, but it does so in an ethical way. There is no reason to associate yourself or your reputation with a company or person who doesn’t understand the things they are selling or the regulations attached to them.
When I was working with the salesman, he told me several times that he could get this much out of a person or that much out of a person. I told him in the beginning that if I won the lottery on Saturday, I would wake up and go to work on Monday. He thought that appealing to my greed would lure me into this unethical business he was in. Once I got away from the situation, I saw it for what it was.
Because of my years of experience, I am not usually the cheapest option, but then again, you get what you pay for. Circular 230 talks about an unconscionable fee. Is $28,000 unconscionable? I don’t know. I do know that if you are going to charge that much, you say so upfront and not with rewrites to a contract. You take the time to assess the situation as a whole before you go back to the client.
There has to be an ethical way to enter this market. There has to be a way to make money and help people at the same time. When I figure it out, I will let you know. In the meantime, be careful of the sharks that come and circle us this time of year.