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Potential Class Action Lawsuit Against TaxMasters Inc. for Deceptive Business Practices

Consumer fraud can occur when an individual purchases a product, service or property that does not function as advertised.  Current and former customers of, TaxMasters Inc., may be entitled to financial compensation as the tax relief firm allegedly engaged in deceptive business practices and misled consumers with its advertisements and misleading statements.

TaxMasters Inc. claim to provide tax relief services to individuals with federal and state tax debt problems and liabilities including services such as:

  • Stopping IRS wage garnishment
  • Stopping IRS property seizures
  • Assisting with paying back taxes
  • Settlement of consumers’ tax debt by reducing the amount of interest and penalties
  • Handling disputes in tax court.

TaxMasters Inc. may be liable in that they potentially deceived vulnerable consumers who sought to address their tax problems, and overstated their ability to reduce consumers’ tax obligations.

Tax Masters makes representations to distressed consumers who face possible action by the IRS  that include the following:

  • “..former IRS agents and tax professionals at TaxMasters will solve your tax problems.”

  • “TaxMasters – we solve your tax problems.”

  • “TaxMasters’ staff is composed of former IRS agents, enrolled agents, tax attorneys and CPA’s with tax expertise.”

  • “From the moment you give our tax consultant the go-ahead on the phone, we start working for you.”

TaxMasters allegedly convinced people to pay them thousands of dollars upfront, in exchange for lowering their debt to the IRS. Then they would simply pocket the money and do nothing to lower their victims’ tax debt, all while the interest on the tax debt increases. To make matters worse, TaxMasters may have then used illegal and harassing debt collection techniques to try to get money from victims of this potential scam.

Alleged TaxMasters SCAM

Potential legal claims against TaxMasters lawsuit would involve a number of allegations regarding the company’s advertising and business practices. Specifically, TaxMasters allegedly:

  • Deceptively advertised its tax and legal services to vulnerable consumers.

  • Charged hidden fees and money against consumer credit cards.

  • Promised to eliminate consumer tax debts and failed to do so.

  • Charged non-refundable service fees ranging anywhere from $1500-$10,000 or more for services they did not or could not perform.

  • Refused to provide the required 30-day right of cancellation with the full refund required for internet and telephone sales.

  • Altering or adding contractual terms without consumers’ consent after receiving “non-refundable” payment.

  • Represented sales people with no tax or legal qualifications to be “tax professionals.”  Tax Masters in its advertisements offered a “free tax consultation” to discuss handling IRS problems.  Instead, when the consumers called the toll free number, this “tax consultation” was nothing more than a sales call with the consultant having one goal – close the deal by charging the consumer’s credit card thousands of dollars.

  • Refusing to perform any real tax services before the consumer paid thousands of dollars in upfront, non-refundable fees.

  • Established payment plans with consumers who were unable to pay full fee, but did not perform any work until payment was made in full – in some cases missing filing deadlines.

  • Even in cases where services had not yet been rendered, they engaged in illegal collection services in an effort to collect monies they deemed were owed by consumers.

TaxMasters’ Fraud Surrounding Alleged “Tax Consultants”

Potential claims against TaxMasters would further allege that the company falsely advertised “free consultations” with a tax consultant.  In reality, consumers who called the TaxMasters’ toll-free number were connected to a phone representative who proposed a solution to the caller’s tax problems and then obtained the caller’s credit card or bank account information without providing several material disclosures, including the payment of non-refundable fees. Furthermore, Tax Masters representatives handling these calls allegedly were not required to have any previous tax knowledge, but rather were encouraged to have a thorough understanding of phone sales and how to close a deal.   According to the Tax Masters web site career advertising pages, the skills and experience requirements for the claimed “tax consultants” fielding the initial calls from unsuspecting consumers appear to geared around sales, as opposed to tax knowledge or tax experience.  Qualifications include the following:

  • “Previous inside sales success experience and phone sales skills are a must, preferably three plus prior years of experience in a sales environment”*

  • “In-depth understanding of effective closing techniques practiced to an art form are required”*

  • “Demonstrable track-record of success in maintaining sales quotas and achieving company goals and standards”*

  • “Documented success in sales, a clear understanding of the bottom line and strong leadership skills”*

Allegedly, after presenting a solution to the caller’s tax problem, the salesperson quotes a fee, which can run into thousands of dollars.  When the consumers request a written explanation of services to be rendered, they are advised by the TaxMasters sales person that they are unable to generate this document until payment information is entered into their system.  Unsuspecting and vulnerable consumers comply and claim to later discover that the terms of their verbal agreement have been altered and in some cases additional hidden fees charged over and above what was authorized. Consumer fraud attorneys further believe that TaxMasters may have persuaded consumers to pay thousands in fees through an internet installment plan and told them that work would begin immediately on their cases. The clients later discovered that no action had been taken and in actuality work did not begin until payment is made in full – in some cases causing missed filing deadlines and additional penalties.

TaxMasters’ alleged mode of operation was as follows:

  • They promise you that only they can resolve your tax problem and keep you out of jail. Of course, they can only do this if you hire them NOW.

  • They tell you that they have inside information about how the IRS works. This phony claim is designed to get you to hire them before you consult with a qualified CPA, attorney or IRS Enrolled Agent.

  • Once you hire them and only after you pay them a sizable fee, they provide an IRS Form, engagement agreement and engagement guide instructing you to immediately sign and return.  The engagement agreement includes small print that includes various previously undisclosed terms and conditions.

  • TaxMasters’ position is that these fees are binding and immediately non-refundable, whether or not you have signed their engagement agreement and regardless if they have performed any services.

  • Your information is shipped to a processing unit where low-level clerks are assigned to “handle” the case.

  • Without asking you anything about the nature of your tax debt or your current financial condition, they promise you that they have special contacts at the IRS who will facilitate a settlement of your debt for mere “pennies on the dollar.”

  • Undisclosed to you, Tax Masters allocates a number of hours to your case which correlates to the fee that is charged.   Should the actual time required to address your issue exceed the anticipated “budgeted time”  you will be charted additional fees at rates up to $950 per hour.

  • Should you choose to cancel services and ask for a refund within 24 hours of the initial sales call, you will be advised that TaxMasters will not refund any portion of the fee, even though they have not provided any services.

  • Tax Masters will also pursue collection of fees after you cancel the agreement – regardless if any services have been performed.

TaxMasters’ tax consultants were also quoted to have made the following claims:

  • “… based upon our success rate and our experience, on average, our clients see a savings of anywhere between 80 and 90% of what the IRS claims they owe.”

  • “We’re highly successful; we are the most successful tax resolution company. We’re 97% successful.”

  • “We’ll save you anywhere from 65 to 90% is our goal on … savings off the total tax debt. 97% of the time we reach that goal, the other 3% are the people who just flat out lie to us.”

  • “…our main audit attorney… you’ll be glad to know he’s never lost a case”.

  • “Because what we’re going to do is tie, we’re going to tie this up in litigation as long as we can.”

Although TaxMasters is not licenses to practice law in any state, they are allegedly selling services to consumers that require professional legal judgment, legal discretion, legal analysis and advice with regard to tax debt and liabilities.

TaxMasters’ Alleged Fraudulent Advertising

Television advertising was credited for helping increase Tax Masters’ revenue from $6.5 million in 2007 to $36.8 million in 2009. Tax Masters runs frequent commercials on network and cable television including MSNBC, CNN, and Fox News, as well as on the internet.  Patrick R. Cox, the President and Chief Executive Officer of TaxMasters, Inc., appears in many commercials claiming to “get between” the IRS and the consumer.  He claims that former IRS agents, attorneys, and other tax professionals are standing by to assist and advise the consumers with their tax problems.

In addition to advertising, TaxMasters’ web site explains that the recession and rising unemployment has increased the number of potential TaxMasters customers who are faced with severe financial difficulty resulting in their inability to meet IRS obligations.  It has been noted that claims made in the advertising were toned down in late 2009 following scrutiny from federal regulators. However, consumer fraud attorneys allege that the tax consultants were still making outrageous claims that the company’s results did not support.

TaxMasters’ “F” Better Business Bureau (BBB) Rating

The Better Business Bureau of Houston Texas, the home of TaxMasters’ operations, has given Tax Masters an “F” rating.  The BBB is a resource free to consumers and business owners that provide business reviews based on background, licensing and consumer experience.  The BBB acts as a neutral intermediary to resolve disputes between consumers and business and provides information to consumers to assist them in their purchasing decisions.

The A+ through F letter-grade rating system represent BBB’s level of confidence that the business is operating in a trustworthy manner and will make a good faith effort to resolve any customer concerns. Some of the factors that contribute to the BBB rating include:

  • Government actions against the business**

  • Advertising issues **

  • Number of complaints to the BBB from the business’ customers**

  • Complaints to the BBB from the business’ customers that are serious in nature**

  • Whether the business has responded to complaints received by the BBB**

  • Whether complaints have been resolved in a timely manner and/or the business has demonstrated a good faith effort to resolve them**

  • Whether the business has honored commitments to the BBB to arbitrate disputes and comply with arbitrator decisions**

Some of the factors that contributed to Tax Masters’ BBB “F” rating include:

  • 1033 complaints filed against TaxMasters**
  • Failure to respond to 62 complaints filed against TaxMasters**
  • 378 complaints filed against Tax Masters that were not resolved**
  • Government action(s) against TaxMasters**
  • Tax Masters has failed to resolve underlying causes of a pattern of complaints**

While TaxMasters’ sales growth has soared over the past three years, it appears that the BBB of Houston Texas TaxMasters’ complaints have soared as well.  Over the last three years, 1033 complaints have been filed with the BBB related to Tax Masters. A summary of the type of complains related to TaxMasters’ services are as follows:

BBB Complaint Type                        Number of Complaints

Advertising / Sales Issues                                  63**

Billing / Collection Issues                                   69**

Delivery Issues                                                  26**

Guarantee / Warranty Issues                             8**

Problems with Product/Services                        867**

According to the BBB of Houston Texas regarding TaxMasters: “This company has an unsatisfactory report for a pattern of complaint activity regarding service and for unanswered and unresolved complaints.  BBB complainants allege consumers are required to pay for the company’s service before the company releases a copy of the contract and their policies for the consumer to review and sign. Numerous complaints alleged that after collecting an advance fee, Taxmasters failed to provide the promised tax relief and refused to the advance fee consumers paid them.”**

Government actions and lawsuits also contributed to Tax Masters’ “F” BBB Rating:

  • The Texas Attorney General charged TaxMasters, Inc. and Patrick Cox, TaxMasters’ CEO, with multiple violations of the TX Deceptive Trade Practices Act and TX Debt Collection Act in May, 2011.

  • Following the receipt of 26 complains related to unfair competition and deceptive trade, the Florida Attorney General initiated an investigation of Taxmasters.

  • A lawsuit has been filed against TaxMasters by the Minnesota Attorney General for misstating the help it will provide people with tax bills.

Have You Been Ripped Off  by TaxMasters?

If you believe you have been a victim of a Tax Master’s scam, or if you feel you have been cheated by Tax Masters, contact the New Jersey Consumer rights lawyers at the Clark Law Firm, PC.  If you paid money to TaxMasters for services that were not performed, or were otherwise treated unfairly by Tax Master in violation of basic commercial transaction rules, you may have been a victim of fraud.  If you feel you have a potential consumer claim / lawsuit against Tax Masters, contact the experienced consumer fraud attorneys at the Clark Law Firm, PC –  877-841-8855.

*  TaxMasters http://www.txmstr.com/
** Better Business Bureau  http://www.bbb.org/houston/business-reviews/taxes-consultants-and-representatives/taxmasters-in-houston-tx-60000056/

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