4 problems with the tax resolution industry

one of these is actually a violation of tax code.

by jassen bowman
tax resolution systems

tax resolution is the process of negotiating repayment plans and other irs program options on back tax debt. in my opinion, tax resolution is more appropriately called “tax debt collections representation,” since that’s what you’re doing: representing the best interests of your clients in order to get them out of the irs or state tax collections cycle.

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according to the irs, over 14 million americans owe back taxes to the united states treasury as of the end of fy16. millions more owe back taxes to state and local governments.

the current landscape of the tax resolution industry isn’t particularly attractive from an ethics perspective. large, boiler room telemarketing operations use high-pressure sales tactics to scare tax debtors into paying outrageous fees for questionable work product.

in some cases, the federal trade commission and state and federal courts have demonstrated that there was actually no work product from some of these companies.

industry problems

when i first entered the tax resolution industry, i quickly identified a large number of problems that were systemic within the industry, not just the company i was working for.

first, nearly all of the large, national tax resolution companies had one single source of clients: boiler room telemarketing.

if you want a surefire recipe for eventual business failure, then only have one source of clients.

even worse for the industry, most of these sales call floors operate much like what you may have seen in the movie “wolf of wall street.” the things i’ve seen on tax resolution call floors is pretty insane: sales reps screaming and swearing at prospects. promising everybody an oic settlement. even drug deals. yes, drug deals. it’s not a pretty scene.

but the worst part of this, to me, from the perspective of the taxpayer, is that these companies are using unlicensed sales reps who know absolutely nothing about taxes to sell an expensive service to desperate people.

in case you’re unaware, it’s a violation of circular 230, revenue procedure 81-38, and revenue procedure 2014-42 for an individual other than an ea, cpa or attorney to solicit licensed irs representation services over the telephone. unfortunately, in this age of id theft and tax return fraud, the irs criminal investigation division and the office of professional responsibility have their hands full with much bigger problems. thus, this restriction on solicitation goes unenforced.

the second big problem that i identified in the industry was that there existed a never-ending litany of spin-off companies. what happens is that sales reps and licensed representatives see all the easy money being made at a firm, so a few of them band together and leave to set up their own shop.

this is why you see large concentrations of these fly-by-night companies in certain parts of the country. denver, chicago, los angeles and vero beach, fl, in particular, are ground zero for the ever-increasing number of these bad operators.

the third major problem that i identified industrywide was a complete lack of automation inside these companies. at the time, tax resolution software options such as canopy and pitbull didn’t exist yet. but even with that, there was almost no automation of any processes. no crm systems. no document management systems.

in fact, at the tax resolution where firm i first started in 2008, they didn’t even use tax preparation software. seriously. we prepared tax returns by hand from pdf forms.

as a result, i began a major project to program my own tax resolution case work management software. the user interface was horrible, but it brought a level of prospect and case work automation that never existed before, and was one of the most instrumental keys to growing that firm’s revenue by 353 percent per month in just 17 months.

in retrospect, if i had known how big the tax resolution cloud software industry was going to become, i would have formed a tech startup to take that software commercial when i left the firm in late 2010, rather than going into private practice doing tax resolution work. hindsight!

a corollary to this lack of automation at any level within the organization was that it created massive communication problems between individuals within the company. things were so bad at the company i worked for that it was not uncommon for items such as 433s to be in the wrong client folder, or for information to come in on the fax machine and sit there for two days.

nine years later, i think that more tax professionals than ever before have finally embraced the concept of the paperless office. technology is your friend, and should be an integral part of your office systems. in short, paper and the lack of systemized processes are two major enemies to achieving million-dollar success in this business.

the fourth major problem i discovered within the industry was that the concept of lead followup was almost nonexistent. the high-pressure, boiler room sales tactics used at these companies precluded long-term sales processes. everything was all about the immediate sale, the low-hanging fruit.

the problem with this approach is that most of your marketing dollars are spent generating prospects. once you have a prospect, why on earth would you ever let them go? most sales reps would give up after a week or two, which is absolutely insane. when you’re asking somebody to spend several thousand dollars on a professional service, it simply makes logical sense to follow up with them for as long as possible.

in fact, over 90 years of empirical evidence clearly indicates that consumers are more likely to make a purchase decision on the fifth through eighth contact than on the first four contacts combined. if you only make three or four followup contacts with a prospect, then you’re flying in the face of human nature and statistical evidence. good luck with that!

posted on july 2, 2017