AG says TaxMasters misled consumers

This post comes from partner site ConsumerAffairs.com.

A company that purports to help consumers who are having tax problems has problems of its own in Texas.

Houston-based TaxMasters Inc. and its chief executive officer, Patrick Cox, are accused of multiple violations of the state's Deceptive Trade Practices Act and Debt Collection Act.

According to the enforcement action filed by Attorney General Greg Abbott, the defendants unlawfully misled customers about their service contract terms, failed to disclose its no-refunds policy, and falsely claimed that the firm's employees would immediately begin work on a case -- despite the fact that TaxMasters did not actually start to work on a case until its customers paid in full for services, even if the delayed response meant taxpayers missed significant IRS deadlines.

"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.

"The state's enforcement action seeks to prohibit the defendants from continuing to violate the law and seeks restitution for the financially struggling taxpayers who were harmed by the defendants' unlawful conduct," Abbott said.

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According to The New York Times, a Taxmasters spokesman "said the company would work with the state to resolve the complaints."

TaxMasters advertises a tax resolution service for federal taxpayers who have received notice from the IRS of an audit, garnishment, lien, levy or tax deficiency. Citing a "national advertising campaign" and high-profile "endorsements," the company claims to have "one of the most effective tax relief teams in the tax representation business."

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'Free' consultation

TaxMasters' ads encourage taxpayers to call its toll-free number for a "free consultation" with a "tax consultant." Court documents indicate callers are not connected to an employee qualified to give tax advice, but rather with a TaxMasters sales representative who recommends a "solution" for between $1,500 and $9,000 or more.

According to court documents, many callers were offered an installment plan so that they could pay the fee over a specified period of time. However, callers who asked to see written terms and conditions prior to making a payment were informed that a credit card or bank account number is necessary to generate a written TaxMasters service contract.

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As a result, TaxMasters customers were unaware of -- and the defendants' personnel did not have a practice of disclosing -- multiple aspects of the TaxMasters service agreement that were harmful to taxpayers, the documents said.

For example, the company did not disclose that all customer payments submitted to TaxMasters are nonrefundable. Because customers were not provided written contracts and sales personnel did not reveal the no-refunds policy, customers did not know that they would not be able to recover any installment payments they submitted to TaxMasters -- even if they ultimately decided to cancel before TaxMasters actually did any work on their tax case.

The state's enforcement action also says TaxMasters failed to reveal that it would not begin work on a case until the entire fee was paid. Multiple complaints indicate that customers entered into an installment agreement with the understanding that TaxMasters would immediately begin work on their case -- only to discover later that no action was taken.

Restitution

Court documents also indicate the defendants failed to disclose TaxMasters' requirement that customers pay the entire service fee -- even if they opt to cancel their contract. Not only did TaxMasters attempt to obligate its customers to a fee in the absence of a signed contract, the defendants used unlawful debt collection tactics to enforce the unauthorized obligation, the documents said.

According to the state's enforcement action, the defendants also failed to properly provide the "tax resolution" services that were advertised.

The AG is seeking restitution for each TaxMasters customer who was financially harmed by the defendants' unlawful conduct, as well as civil penalties of up to $20,000 for each violation of the Texas Deceptive Trade Practices Act.

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