By Stephen J. Dunn
Over the years many taxpayers have come to me having been scammed by a tax resolution artist. The cases follow a similar pattern. Income tax is assessed which the taxpayer cannot currently pay. As a result, a tax lien arises against all of the taxpayer’s property, then owned or acquired in the ensuing period of the collection statute of limitations. A third party who buys the taxpayer’s property or lends money upon it without notice of the tax lien could have a higher priority than the taxing authority in the property as a “bona fide purchaser for value.” To protect the taxing authority’s interest in the property from such a claim, the taxing authority records notice of its tax lien in the register of deeds’ office of the county of the taxpayer’s residence. This effectively disables the taxpayer from selling or mortgaging an interest in real property. Usually the taxing authority is the Internal Revenue Service. Sometimes it is a state.
Tax resolution scam artists use the recorded tax lien notices for a purpose for which they were not intended: to market tax resolution services. The taxpayer’s name and address appears on a recorded tax lien notice. Tax resolution scam artists bird dog Register of Deeds’ offices for recorded tax lien notices, and then bombard the taxpayers identified therein with come-ons for tax resolution services. Often the solicitations are made to appear as if they are coming from the IRS. In addition to direct mail solicitations, tax resolution scammers advertise on television, radio, and the internet. The solicitations and advertisements typically make false statements, such as false claims of success for taxpayers, or urging a nonexistent, limited-time (“Act now”) offer of leniency from the government.
When a taxpayer calls a tax resolution scam artist, he encounters high pressure sales tactics. The sales personnel make whatever promises needed to induce the taxpayer to pay a retainer, generally $5,000-$10,000. Once the money is paid, the scam artist disappears. The scammer generally does little or nothing for the money.
Tax resolution services are unregulated. The industry is fraught with poorly-qualified scam artists looking for a quick buck. The scammer generally is located several states away from the taxpayer, making it uneconomic for the taxpayer to pursue legal action against the scammer.
The taxpayer and the taxing authority are both out the money taken by the scammer, which should have been applied against the taxpayer’s tax liabilities. The tax collection case against him unresolved, the taxpayer remains subject to tax collection action, including seizure of his swages and his bank accounts.
I have written on tax resolution scams previously—links appear in the margin. Legal action has succeeded in shutting down many of the larger tax resolution scam operators. Jerry Brown, then the Attorney General and currently Governor of California, won an injunction discontinuing the infamous “Tax Lady” Roni Lynn Deutch. The Federal Trade Commission won an injunction closing Americsn Tax Relief, LLC. J.K. Harris & Co. and TaxMasters, LLC closed by virtue of class action litigation. It seems that as fast as tax resolution scam operations are shut down, new ones sprout up.
The government can and should do more to protect consumers from tax resolution scams. A greater enforcement effort by the FTC is in order.
Moreover, Congress should enact legislation criminalizing the use of a recorded notice of federal tax lien to market tax resolution services to the taxpayer identified therein. Such legislation would require little enforcement effort. Just having it on the books would have prophylactic effect.
Finally, we already have statutes on the books criminalizing the perpetration of fraud by use of the mails or wire transmissions. The Justice Department should undertake enforcement of these statutes against tax resolution scam artists.