DON'T MESS WITH TAXES

Don’t Mess with Taxes

Founding father Benjamin Franklin was the most quoted public figure of his day. He had a knack for proverbs that appeared in Poor Richard’s Almanac,” such as: “A penny saved is a penny earned” and “Remember that time is money.” Perhaps his most remembered quote was in a letter he sent to French scientist Jean-Baptiste LeRoy. Referring to the adoption of the United States Constitution, Franklin wrote: “Our new Constitution is now established, everything seems to promise it will be durable; but, in this world, nothing is certain except death and taxes.”

This is a promise that some “tax assistance” hucksters repeatedly ignore.

Take TaxMasters, Inc., a Texas firm that promised taxpayers they would achieve untold savings from its tax consulting services. From 2008 through 2011 TaxMasters spent millions of dollars to saturate CNN, Fox News, and other cable outlets with commercials that promised to help taxpayers untangle problems with the IRS. The company went public in 2010, bringing in $45.7 million, according to SEC filings. TaxMasters posted ads seeking “tax consultant-inside sales representatives” where “previous tax knowledge is not required.”

TaxMasters’ sales reps answered incoming calls from people with tax problems with the IRS. The sales reps told potential customers that TaxMasters had a success rate in the high-90 percentile for reducing the amount of taxes customers owed. Some potential customers were also told that IRS collection actions would stop once the customer signed up and paid a fee to TaxMasters. According to one sales pitch: “It’s automatic, that’s what the IRS consultation does, it pulls your name, it pulls your number out of the collection process.” In reliance on these statements, taxpayers paid thousands of dollars for representation from TaxMasters. In return? TaxMasters would “go slow” with communication with the IRS, while telling the taxpayer they were negotiating a compromise. In fact, in some cases, nothing was happening and the taxpayer incurred thousands of dollars in penalties and interest for late payment of taxes.

Often, the only “service” offered by TaxMasters was to send the taxpayer forms, such as an “offer of compromise,” that were readily available for free from the IRS.

TaxMasters promised that it could settle IRS claims for “pennies on the dollar.” According to the IRS Taxpayer Advocate Service, such promises were not being straight with their customers. According to an official at the IRS Taxpayer Advocate Service, some taxpayers retained a tax service and then, to their detriment, ignored correspondence from the IRS because they thought the consultant was communicating with the IRS. Not so, and the taxpayer was caught with more penalties.

In 2010 Attorney General Lori Swanson was one of the first government officials in the country to take action against TaxMasters, filing a lawsuit against the company in December of 2010. The lawsuit accused the Texas company of collecting up-front fees of as much as $8,000 while falsely claiming it could reduce tax debt by as much as 90% and stop garnishment of wages.

In 2012 TaxMasters—the company that claimed to be an expert in helping people avoid financial problems with the IRS—filed for Chapter 11 bankruptcy.

REFERENCES:

1. https://abcnews.go.com/Blotter/taxmasters-patrick-cox-hit-200-judgment/story?id=16040652
2. https://abcnews.go.com/Blotter/taxmasters-accused-fraud-deception/story?id=13364502
3. https://abcnews.go.com/Blotter/back-taxes-pennies-dollar-irs/story?id=13332245
4. Pabst, Laura, “State Sues firm that promises help with IRS,” Star Tribune, December 17, 2010 page D1
5. Sitaramiah, Gita, “Tax firm sued for upfront charges,” Pioneer Press, December 17, 2010, p.1C.
6. State v. TaxMasters, Inc., Case No. 27-CV-10-28133