Trouble For TaxMasters

Apr 21, 2011   

TaxMasters, a Houston-based publicly-traded company that bills itself as helping people having trouble with the IRS, stands accused in two states of deceptive business practices. Texas and Minnesota have both filed suit, with the former alleging that the company engages in “false, misleading, and deceptive acts and practices” and the latter filing a civil action accusing TaxMasters of fraud and deception. Minnesotas Attorney General was quoted by ABC News saying, “[t]his is a company which is taking advantage of people . . . when people see it on TV, they do believe in it.” According to the ABC report, TaxMasters is spending millions on advertising on cable channels such as CNN and Fox News.

According to filings with the Securities and Exchange Commission, the company tripled its advertising spent in 2010 to over $45 million. CNN said it was aware of the activity and was monitoring the situation as TaxMasters works with state authorities. Fox, for its part, stated that it forwards viewer complaints to the company, which must be resolved within five days. While Fox acknowledges having received complaints, it declined to state their number or nature. According to a Fox spokeswoman, all complaints had been resolved. ABC aired an investigation into the company on its World News and Nightline programs.

Lori Swanson, the Minnesota attorney general, says many of TaxMasters employees have little knowledge of complex tax issues. Rather, they are skilled telemarketers, like the “talented closers” sought by the companys job posting for a “tax consultant-inside sales representative.” The same ad stated that “[p]revious tax knowledge is not required,” despite television commercials boasting of the companys staff of former IRS agents and other professionals. The commercials feature the companys CEO, Patrick Cox, who declined an interview with ABC. In a statement, he did not address the suits, but wrote that TaxMasters “prides itself in honest customer services, a transparent process with our customer, and seeking fair treatment from the IRS.”

According to Swanson, the main problem is the upfront fee, ranging between $2,000 to $8,000, TaxMasters charges its customers. The “promised help doesnt materialize,” she said. Potential customers are told that TaxMasters has a 97 percent success rate in reducing taxes owed and that IRS collection action ceases “automatically.” The first claim, Swanson says, is “not true,” and the second claim is denied by the IRS.

Swanson further states that “when you hire [TaxMasters] sometimes the situation gets even worse.” A person cited in the ABC investigation, Charlene Lee of Plymouth, Minnesota, says she “ended up owing more in penalties and interest after she paid TaxMasters $4,800 to help her with a tax bill.” After taking months to take her case, the IRS rejected the companys settlement offer and continued to add thousands in interest and penalties.

Officials in both Texas and Minnesota have received hundreds of complaints from former customers. Cox did not comment on the specific cases presented in the ABC investigation.
Additionally, the Attorney General for the state of Texas won a judgment against another income tax consulting firm, JK Harris & Company. The South Carolina company must pay $800,000 in refunds to customers and reimburse the state for investigative, court, and attorney costs. The court also ordered the company to reform its business practices. Texas Attorney General Greg Abbott said, “[t]axpayers from across the state complained to the Attorney General’s Office about the defendants’ misconduct. The agreement seeks to resolve past problems, reimburse Texans who paid for services that were not actually rendered, and prevent additional misconduct in the future.”
The attorneys at Fuerst Ittleman have many years of experience representing clients before the IRS and in litigation against the IRS. If you have a problem with the IRS, please contact us at