Allegedly Deceptive Tax Help Firm Filing Bankruptcy
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Allegedly Deceptive Tax Help Firm Filing Bankruptcy

March 23, 2012


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SHARE reports that TaxMasters, a Houston-based firm that advertised itself as a tax-assistance outfit, has filed for bankruptcy protection in the face of civil suits from the attorneys general of Texas and Minnesota.

Though the original complaint against TaxMasters was reportedly filed almost two years ago, various delays in court proceedings have prevented the case from going before a judge until now. Recently, the court denied a final request for continuance from the company, and the civil trial began.

The charges against TaxMasters read like those commonly seen against debt settlement outfits. The firm has apparently been charged with failing to disclose its no-refund policy, misleading customers about how quickly their cases would be examined, grossly overstating how much money it could save customers on their tax bills, and accepting thousands of dollars in customer money without providing any services.

Sources note that one of the complaints leveled against TaxMasters include charges that the company accepted as much as $2,000 to $8,000 from individual customers, claiming that the money would go toward paying their taxes, but instead kept the money in its own coffers.

In that particular case, the company reportedly denied its culpability in the matter, but agreed to change the way it handled such cases and paid the state of Minnesota half a million dollars in a settlement. The AG apparently took action after receiving more than 1,000 complaints against TaxMasters during the course of three years.

Between $5 and $10 Million Owed to Creditors

With that settlement behind it and its court case unavoidable, TaxMasters has revealed itself as financially unsustainable. In papers filed with the bankruptcy court, the company listed between $5 and $10 million in debts to creditors, and less than $50,000 in assets.

Its creditor list reportedly includes between 1,000 and 5,000 individual creditors, which points to the possibility that many of them are former customers that the company improperly charged for services.

One of the problems plaguing TaxMasters, it seems, has affected similar tax preparation firms, two of which have filed for bankruptcy in recent months. Apparently, these companies funnel a significant portion of their resources to advertising efforts (TaxMasters spent 37 percent of its budget on ads in 2010), and assign salespeople, rather than accountants, to intake interviews.

This technique may lead to unrealistic promises, as the sales team is paid on commission. It can also lead to customer complaints and, ultimately, bankruptcy.

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