For Valerie Tobias, a grandmother who lives just outside of Chicago, the TV commercial for American Tax Relief was the answer to her prayers.

“They promised they could settle your taxes for pennies on the dollar,” Tobias recalled.

At the time, she owed the IRS about $12,000 and had no way to pay that tax bill. So she called the company and was told she qualified for tax relief. They could start working on her case as soon as she paid $3,800.

“They took my money and didn’t do anything, absolutely nothing,” Tobias told me. “I was trying to better my situation by getting my taxes taken care of and they just lied to me. It was horrible.”

Tobias is one of thousands of people across the country who took the bait and paid American Tax Relief to dramatically reduce their tax bills. The Federal Trade Commission (FTC) says the company took in around $103-million dollars before it was shut down in September of 2010.

This week, a federal court ordered the company and its owners to pay more than $15 million in cash and assets to settle charges they violated federal law.

“We determined that out of approximately 20,000 consumers, less than 600 received tax reductions that were for more than they paid American Tax Relief,” said Karen Dodge, the FTC attorney who handled this case.

They didn’t help Eva Russell of Pemberton, N.J., who described her experience as “a real nightmare.”

Russell and her former husband owned a business that owed the state of New Jersey an “enormous” tax bill. American Tax Relief said they could get that reduced for a fee of $12,000, payable in advance.

 “They said they had lawyers who would work with the state to decrease the amount we owed.” Russell told me. “They said they could guarantee that.”

Russell thought the company seemed legitimate. It had a nice website with testimonials from people who said they’d been helped. She was assigned a case manager who said he would handle everything.

But after waiting a year, nothing happened. Russell tried to get her money back with no luck.

“Shame on me for getting involved, but it’s unbelievable to me that someone would take $12,000 and not do anything,” she said. “I’m not a stupid person. I have a graduate degree, but you feel real stupid after something like this.”

Be wary of tax relief companies
Tax relief services prey on people in distress. They say they can drastically reduce or even eliminate your tax debt and stop garnishment or other back-tax collection. Don’t believe it.

“In fact, that is not possible for most people,” the FTC’s Karen Dodge told me.

The IRS has an “Offer in Compromise” program that lets people settle their tax debt for less than they owe, but you have to prove that you can’t pay the full amount.

“There isn’t some trick to getting these. You have to be qualified by the IRS, not by a company that says you qualify,” Dodge explained. “There are no guarantees. A lot of documents need to be reviewed to determine if you qualify. It cannot be done in a short phone conversation.”

 The FTC’s advice: If you’re going to pay someone to help you with a tax problem, make sure they’re legitimate. Find a good accountant, CPA or attorney. Or contact the IRS and see what you can do for yourself.

Give your money to a tax relief scammer, and odds are you will never see it again. You’ll be worse off than when you started.

More information:

• FTC Settlement: Tax relief scammers agree to pay more than $15 million
• FTC Tip Sheet: Tax Relief Companies
• IRS: What if I can’t pay my taxes?
• FTC Tip Sheet: Coping with Debt

Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.