TaxMasters files for bankruptcy

John O'Brien Mar. 20, 2012, 10:48am


HOUSTON (Legal Newsline) - Facing legal actions brought by two state attorneys general, a tax relief company on Monday filed for bankruptcy.

TaxMasters filed its Chapter 11 bankruptcy petition in a federal court in Houston, listing less than $50,000 in assets and between $1 million and $10 million liabilities. The company was known for its television advertisements starring CEO Patrick Cox.

In May 2010, Texas Attorney General Greg Abbott filed a lawsuit against the company, and Minnesota Attorney General Lori Swanson filed one of her own seven months later.

"In the midst of a national economic downturn, TaxMasters used a nationwide marketing campaign to offer services for distressed taxpayers who needed help dealing with the IRS," Abbott said.

The state's enforcement action said TaxMasters misled customers about the terms of its service contracts, didn't disclose its no-refunds policy and untruthfully claimed that the firm's employees would immediately begin work on cases. The latter did not happen until the customers paid in full, even if it resulted in missed filing dates with the IRS, Abbott claimed.

Abbott's investigation included nearly 1,000 customer complaints. A Dallas Morning News report noted that Cox had recently donated $23,500 to Gov. Rick Perry's re-election campaign when the lawsuit was filed.

Swanson, meanwhile, said the company tricked customers into paying advance fees of $2,000 to $8,000 by misstating the help it would provide with unpaid tax bills.

In some cases, the company claimed it could substantially reduce people's tax bills by up to 90 percent, but then delivered little or no help, Swanson says. In other cases, the company falsely promised that it could stop IRS collection efforts against consumers who hired it, she says.

"The company gets worried people to pay thousands of dollars by overstating the help it will provide with their tax bills," Swanson said in a statement.

Contrary to TaxMasters' promises, most citizens do not qualify for special IRS programs that reduce a person's tax debt, Swanson said.

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