No Advance Fees-Sort Of

A special thanks to Tax Mama for the heads up on this.

The FTC has recently amended the Telemarketing Sales Rule to cover abusive practices by debt collectors. While aimed at those who are targeting consumers who want relief from credit card debt, tax debts to governments are also covered. The Rule now prohibits for-profit companies (true non-profit corps are excluded from this) from requiring upfront fees for services. Nothing can be paid until a settlement is reached but the consumer can be asked to put the fees into a dedicated account. The company can't touch that money, however, until settlement is reached. The company must also disclose how long it will take and costs, the negative consequences of the negotiations and information on all dedicated accounts. Also, services can not be mis-represented.

The Telemarketing Sales Rule is not limited to telemarketing. Companies who receive phone calls in response to infomercials, TV and radio commericals, newspaper, magazine and phone book advertising, direct marketing are covered by this rule. So, if I put on my web site that I can help someone with an IRS tax debt and, as a result, I get a call from someone from Denver with a big tax debt. I can help them but I can't get a retainer from them. I can only charge them if I get a settlement for them. BUT! The local client who sees the ad and comes into the office for a meeting can be asked for a retainer. The rule doesn't apply when a face-to-face meeting takes place. Go figure!

Okay, for me this probably won't be a big deal. The tax debt issues I see come in from clients, referrals or ads that mention "tax representation". And most will be face to face meetings. In fact, now I would think twice about taking a "phone only" client. But I wonder if the FTC really understands the nature of most tax debt. Unlike the credit card companies, the IRS doesn't "settle" except in very limited cases. When a tax debt case comes in, the first thing I look at is if the taxpayer is compliant-are all the returns filed? If not, that's what we do first. The IRS and most states won't consider any reduction of the tax until that is done. I may be able to reduce the debt but is this enough of a settlement to get paid for work already done? May-be if the client is happy with the result and pays that. If not, I start looking at Offer in Compromise, Installment Agreements and occasionally Currently Un-collectable status. If I can't get paid until a "settlement" is reached, when is the settlement? When the Installment Agreement is made or when it's paid off? I could be waiting years for payment. And since the IRS is going to say no if they think they can get the whole debt, I won't ever get paid for work done for some clients by the FTC's new rules.

The FTC needs to look at how this applies to the tax practitioner who does some debt reduction work for clients. They need to realize that settling tax debt is much different than settling credit card debt. I understand the need to rein in the "pennies on the dollar" guys but if we can't get paid for work done why should we waste our time?

FTC Brochure

FTC-Complying with the Telemarketing Sales Rule