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Entries in TaxMasters (5)

Friday
Mar302012

TaxMasters, CEO Patrick Cox Hit with Nearly $200M Judgment

ABC(HOUSTON) -- A Texas jury has found that the well-known and controversial tax advisory firm TaxMasters Inc., along with its bearded founder Patrick Cox, used deceptive practices in its bid to lure customers and has hit the company with a staggering $195 million in civil penalties.

In a unanimous decision, jurors found that TaxMasters, its holding company TMIRS and Cox had violated the state's deceptive trade practices act more than 100,000 times by misleading customers in television ads and sales calls about upfront costs and confusing them about the services offered, according to Texas Attorney General Greg Abbott.

The Houston-based firm was the subject of an ABC News investigation in April 2011 after Texas and Minnesota accused it of using misleading and deceptive business practices. In one example of a sales call provided to ABC News by Minnesota Attorney General Lori Swanson, a TaxMasters salesperson tells a potential customer who owes $19,000 they can get the payment down to "next to nothing" and says the company is 97 percent successful.

"Not true," Swanson said then. "This is a company, which is taking advantage of people, and unfortunately when people see it on TV, they do believe in it."

"Today's decision marks a significant victory for the Texans and TaxMasters customers nationwide who sought help from TaxMasters with their income tax debts and were taken advantage of in the midst of a national economic downturn," Texas Attorney General Greg Abbott said after the judgment came down. "While the TaxMasters CEO made hollow promises about fighting for taxpayers and their pocketbooks in television ads, the evidence proved that the firm didn't even bother to show up when it came time to fulfill those promises, but instead misled and defrauded their customers."

Just a day before testimony began in the case against them, TaxMasters filed for bankruptcy protection.

As part of the $195 million judgment, Cox, the portly, red-bearded company CEO whose constant presence in TaxMasters' TV ads was parodied by Saturday Night Live, is personally on the hook for nearly $46 million.

TaxMasters signed a settlement with the Minnesota attorney general's office last August in which it did not admit wrongdoing, but agreed to abide by a long list of business practices in order to continue doing business in Minnesota. In addition to paying $500,000 into a fund to be divvied up among former TaxMasters customers, the company agreed to record all its sales calls with Minnesota residents and hand them over to the attorney general's office, stop using the phrase "flat fee," stop referring to former IRS agents working for the firm except when warranted, and add no additional fees to customers' accounts except when authorized via writing or recorded phone call. The agreement also applies to any other tax resolution firm "controlled" by Cox. Failure to abide by the settlement would make TaxMasters and Cox ineligible to do business in Minnesota and trigger a $400,000 penalty.

An attorney for TaxMasters declined to comment for this report.

Copyright 2012 ABC News Radio

Monday
Mar192012

TaxMasters Inc. Files for Bankruptcy

ABC News(WASHINGTON) -- The well-known and controversial tax advisory firm, TaxMasters Inc., filed for bankruptcy Monday morning, just as it was preparing to head to court to defend itself from charges of deceptive practices leveled by the Texas attorney general.

The Houston-based company, best known for a national advertising campaign that made the company's bearded, red-haired founder Patrick Cox a recognizable figure, was the subject of an ABC News investigation in April, in which customers had alleged that the company persuaded them to pay large upfront fees, but never delivered on promises of helping them resolve their tax problems. The commercials boast that the company's staff of former IRS agents and tax professionals "have helped many good people just like you."

But Texas Attorney General Greg Abbott said the ads have been misleading. He filed a multi-count civil case against TaxMasters, accusing it of deceiving its customers and violating the state's debt collection laws.

"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. "A state investigation and nearly 1,000 customer complaints indicate that the defendants routinely misled customers about the nature of their tax resolution service agreements – and worse, attempted to enforce those improper agreements through unlawful debt collection tactics."

ABC News made repeated attempts to contact the company and its founder last week, as word began circulating that it was in financial distress. TaxMasters' customers had reported to KTRK, the owned-and-operated ABC News station in Houston, that they were not able to get responses when calling about their tax filings, and one described visiting the company's office, only to find the doors locked. A telephone sales agent told an ABC News reporter that the company "was not taking any new sales," but would not discuss the company's dire finances any further.

Within the past month, the landlord that owns the building where the company is headquartered sued alleging that Taxmasters failed to pay its January rent. A contracting firm handling construction work at the office also sued the company alleging it had not been paying its bills. Videos on the company's website displaying the well known TaxMasters advertisements featuring Cox were no longer working. Recent filings with the Securities and Exchange Commission carry a warning that the company's earlier financial statements are being amended and should no longer be relied upon.

A spokesman for the Texas Attorney General told ABC News the state was preparing to head to court Monday morning in its civil case, but had not heard anything specific about TaxMasters' financial status. Court papers filed Monday morning indicate that TaxMasters has filed for bankruptcy with between $1 million and $10 million in liabilities.

The TaxMasters ad blitz has been a driving force in the company's soaring corporate revenues. The company, which went public in 2010, brought in $45.7 million, a three-fold increase in two years, according to filings with the Securities and Exchange Commission. The company linked "an increase in advertising expense" to "increased sales volume" in its year-end filing.

The Minnesota attorney general's office, which has also been investigating the firm, told ABC News that many of the company's employees are skilled telemarketers who have little knowledge of the complicated tax issues faced by people who have fallen behind in filing their returns or making tax payments.

"This is a company [that] is taking advantage of people, and unfortunately when people see it on TV, they do believe in it," Minnesota Attorney General Lori Swanson told ABC News. "When you call, you think you're talking to a tax professional. You're really talking to just a salesperson who's trying to get you to sign up."

Cox declined to be interviewed by ABC News, and in a written statement he did not address the specific allegations in the two states' lawsuits. TaxMasters has denied the allegations in the lawsuits and Cox said the company "prides itself on honest customer service, a transparent process with our customer, and seeking fair treatment from the IRS."

At the heart of the problem, says Attorney General Swanson, is a requirement that customers pay an upfront fee ranging between $2000 and $8000.

"When you pay these upfront, advanced fees, now you're signed up, you're stuck, and the promised help doesn't materialize," she told ABC News.

Audio tapes of some sales calls, turned over to the attorney general by TaxMasters, prove the point, she says.

Salespeople tell potential customers TaxMasters is 97 or 98 percent successful in reducing the amount of taxes owed.

"You're owing $19,000," the TaxMasters salesman tells a customer on a recording provided to ABC News by the attorney general.

"I mean we can get you down to basically next to nothing," he continues. "I think we are the most successful tax resolution company. We're 97 percent successful," the salesman says.

"Not true," said Attorney General Swanson. "It's another falsehood of this company. These salesmen tell people that to sign them up, but they don't deliver on those promises."

The IRS says only a small number of taxpayers ever qualify for such a substantial reduction in taxes owed.

Copyright 2012 ABC News Radio

Friday
Apr152011

How to Avoid a Tax Audit as Tax Deadline Looms

Comstock/Thinkstock(WASHINGTON) -- With tax day on the horizon, cable television stations have been inundated with commercials for tax resolution companies offering to help Americans settle their tax debts for less than they owe. But one of the major players in the tax resolution industry, TaxMasters, is under investigation in two states for allegedly defrauding and deceiving customers.

TaxMasters' television commercials feature the company's red-bearded founder and CEO, Patrick Cox, who claims his company's staff of former IRS agents and tax professionals "have helped many good people just like you."

The TaxMasters ad blitz has been a driving force in the company's soaring corporate revenues. The company, which went public last year, brought in $45.7 million in 2010, a three-fold increase in two years, according to filings with the Securities and Exchange Commission.

But the attorneys general in Minnesota and Texas have filed separate but similar civil suits against TaxMasters. Minnesota's Attorney General, Lori Swanson, said the company "is taking advantage of people, and unfortunately when people see it on TV, they do believe it."

Cox declined to be interviewed by ABC News, and in a written statement he did not address the specific allegations in the two states' lawsuits. TaxMasters has denied the allegations in the lawsuits and Cox said the company "prides itself on honest customer service, a transparent process with our customer, and seeking fair treatment from the IRS."

According to Nina Olson of the IRS' Taxpayer Advocate Service, taxpayers with tax debt should vet any tax resolution companies carefully or simply contact the IRS directly to get on a path to settle up.

"Taxpayers can certainly be afraid of approaching the IRS," she said. "They don't know the rules, they don't know what to say to the IRS and they don't know what the IRS wants from them... I think there is a need for someone to come in and help the taxpayers solve their problems."

But back taxes aren't the only tax problems. Many common mistakes can land a taxpayer in the midst of the dreaded IRS audit.

Though some audits are unavoidable (the IRS says it does some completely randomly), there are steps taxpayers can take to reduce their chances of inflicting one on themselves.

Report everything you're supposed to, no matter how small. If you're required to report a financial asset -- even if it's just a few dollars -- report it. The IRS is not looking at the dollar amount necessarily, but it is looking to make sure their documents match yours. Any discrepancies, no matter how small, could send up red flags.

Don't go overboard with deductions. Is that flat screen TV you put in your home office deductible as a business expense? Rather than saying "yes" and hoping for the best, check any questions you might have about deductions against the IRS's guide to deductions, Publication 587.

If you're getting help from a tax preparer, check them out first. The IRS website advocates anyone using a tax preparer check on the person's qualifications and history first. Regardless of who's actually fills out the forms, it's the taxpayer that's held responsible if there's a problem.

Give more information on seemingly questionable expenses before you're asked. New York CPA Michael Schulman told ABC News that when in doubt, provide more information on any filings that the IRS could find questionable. "Personal legal expenses aren't deductible; but ones necessary for the production of income are," he said. "So, don't just deduct legal expenses of $60,000. That will raise an eyebrow. Provide a note explaining that you had to sue, say, to collect payment of fees owed the business."

Don't forget to sign your return. You'd be surprised how many people forget to.

Copyright 2011 ABC News Radio

Thursday
Apr142011

Former TaxMasters Senior Director Says Company 'Cheats' Customers

ABC News(HOUSTON) -- A former senior director at TaxMasters, a tax resolution firm now being sued by two different states for alleged deceptive business practices, claims the company cared more about making money than solving its clients' tax problems, and told sales representatives it was okay to lie to potential clients to get their business.

"You make money as fast as you can and it doesn't matter how you do it," said Lloyd Lee, who was head of tax preparation at TaxMasters until he was fired in 2010. "If you have to lie to a client to get money, you do it. That's the way they operated. It was a money machine."

Houston-based TaxMasters, which saw its revenues soar to $47 million in 2010, has been sued by the attorneys general of Texas and Minnesota for what they allege are deceptive business practices. In commercials that run regularly on Fox, CNN and other cable networks, red-bearded company founder Patrick Cox claims that TaxMasters will "stand between" its clients and the IRS, but officials in Minnesota and Texas say that desperate taxpayers who turn to TaxMasters – and pay thousands of dollars in upfront fees for their help -- may wind up even deeper in debt.

Lee told ABC News that when he went to work for TaxMasters in November 2008 as a tax preparation supervisor, he discovered that despite some good people at the company who wanted to "do right and do a very good job," the company's business practices made it hard to help taxpayers.

"The standard operating procedures of the company prevents that from happening," said Lee. "The main motive behind it was just to make money...and greed."

The emphasis was on sales, not tax preparation, said Lee. Sales representatives outnumbered actual tax preparers by as much as four to one, he added, and almost none of the sales reps had any tax expertise. "Most of them had zero experience," said Lee. "In fact, I did tax returns for several salespeople and a couple of sales managers. If their title is 'Tax Specialist,' they should be able to do a simple 1040 easy. But that wasn't the case." 

As a result, he claims, TaxMasters was a year-and-a-half behind in its tax preparations when he arrived, with the IRS adding interest, and often penalties, as taxpayers waited. "They were 18 months behind in the process because you had all of this work coming in and not enough people to do it," said Lee. "If you sign a contract in January of 2008 and your file doesn't get looked at until November or December of that same year, you've lost a lot of money."

According to Lee, TaxMasters would further delay payment by not forwarding claims to the IRS until clients had paid their TaxMasters bills. The company commonly charges customers from $2,000 to $8,000 to resolve tax debts. Lee also claims that some sales representatives did not disclose hidden costs to customers and would charge customer credit cards before any contract was signed. Asked if he thought that meant customers had been "cheated," Lee said, "Of course, yes."

Copyright 2011 ABC News Radio

Wednesday
Apr132011

Famed TV TaxMasters Accused of Fraud and Deception

Comstock/Thinkstock(NEW YORK) -- Despite accusations in two states of deceptive business practices, the Houston-based tax resolution company TaxMasters continues to spend millions saturating CNN, Fox News and other cable channels with commercials promising to help Americans facing problems with the IRS.

"This is a company which is taking advantage of people, and unfortunately when people see it on TV, they do believe in it," said Minnesota Attorney General Lori Swanson, who has accused the company of fraud and deception in a civil action suit.

The Texas attorney general has filed a similar lawsuit, alleging the company unlawfully "engaged in false, misleading, and deceptive acts and practices."

An investigation airing Wednesday on World News with Diane Sawyer and Nightline will examine whether TaxMasters' promises are too good to be true. 

In a statement, CNN said the network was "aware of pending legal activity" and had been told by TaxMasters that it was working to address the claims with the state authorities. "We continue to monitor any activity for developments or resolution, and will further evaluate our relationship as it becomes necessary," the network said in the statement.

Fox News acknowledged receiving viewer complaints. "Anytime we have received a complaint about TaxMasters we forward it to them and tell them they have five working days to resolve the complaint," said Dana Klinghoffer, Director of Media Relations for Fox News. While Klinghoffer did not disclose the number or nature of the complaints, she said they have all been resolved.

The television commercials feature TaxMasters' red-bearded founder and CEO, Patrick Cox, who claims his company's staff of former IRS agents and tax professionals "have helped many good people just like you."

The TaxMasters ad blitz has been a driving force in the company's soaring corporate revenues. The company, which went public last year, brought in $45.7 million in 2010, a three-fold increase in two years, according to filings with the Securities and Exchange Commission.

The company linked "an increase in advertising expense" to "increased sales volume" in its year-end filing.

The Minnesota attorney general says many of the company's employees are skilled tele-marketers who have little knowledge of the complicated tax issues faced by people who have fallen behind in filing their returns or making tax payments.

"When you call, you think you're talking to a tax professional," said Swanson. "You're really talking to just a salesperson who's trying to get you to sign up."

A posting on the TaxMasters' website last year sought "tax consultant-inside sales representatives" who were strong closers.

"Are you a talented closer ready to move into the next income bracket?" the ad stated.
"Previous tax knowledge is not required," stated the employment ad, which TaxMasters says has since been modified.

Cox declined to be interviewed by ABC News, and in a written statement he did not address the specific allegations in the two states' lawsuits. TaxMasters has denied the allegations in the lawsuits and Cox said the company "prides itself on honest customer service, a transparent process with our customer, and seeking fair treatment from the IRS."

At the heart of the problem, says Swanson, is a requirement that customers pay an upfront fee ranging between $2,000 and $8,000.

"When you pay these upfront, advanced fees, now you're signed up, you're stuck, and the promised help doesn't materialize," she told ABC News.

Audio tapes of some sales calls, turned over to the attorney general by TaxMasters, prove the point, she says.

Salespeople tell potential customers TaxMasters is 97 or 98 per cent successful in reducing the amountof taxes owed.

"You're owing $19,000," the TaxMasters salesman tells a customer on a recording provided to ABC News by the attorney general.

Copyright 2011 ABC News Radio







ABC News Radio