TaxMasters Files for Bankruptcy

Houston-based TaxMasters Inc has filed for bankruptcy protection, according to court documents, after several years of battling allegations of deceptive practices with authorities in Texas and Minnesota. The company, which advertises a service to reduce tax debts by thousands of dollars for consumers, faces a series of charges from the two states over its familiar television ads shown around the country, starring its CEO Patrick Cox and promising the firm will fight with the Internal Revenue Service to reduce clients’ tax debts.

A civil case filed in Texas almost two years ago against TaxMasters got underway Monday after the firm’s latest request for a continuance was denied. Among the charges brought in that case are unlawfully misleading customers about terms in their contracts, failure to disclose a no-refund policy, and making false claims that its employees would begin working immediately on new clients’ cases. In actuality, the company often would not start working on cases until a client had paid all associated fees, leading to many clients missing crucial IRS deadlines.

According to the Minnesota complaint, filed by the state’s attorney general Lori Swanson in December 2010, TaxMasters convinced clients to pay up to $8,000 in upfront fees by promising to reduce their tax debts by up to 90 percent, but ended up delivering very little in actual results in most cases, leaving customers with the same tax burdens but less cash in the bank to pay the debts. Separately, the Better Business Bureau reports that it has received more than 1,000 consumer complaints over the last three years.

According to TaxMasters’ bankruptcy filing, the company has accrued debt of between $1 million and $10 million, and its assets amount to less than $50,000. While the company did not list its creditors in the filing, it did say it has debts with between 1,000 and 5,000 distinct entities. According to its most recent full-year regulatory filing, TaxMasters spent $37 million on advertising in 2010, while reporting a net loss for the year of $4.7 million.