TaxMasters Files for Bankruptcy

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TaxMasters Ad Blitz Increased Sales Volume, Says Company

The TaxMasters ad blitz has been a driving force in the company's soaring corporate revenues. The company, which went public in 2010, brought in $45.7 million, a three-fold increase in two years, according to filings with the Securities and Exchange Commission. The company linked "an increase in advertising expense" to "increased sales volume" in its year-end filing.

The Minnesota attorney general's office, which has also been investigating the firm, told ABC News that many of the company's employees are skilled tele-marketers who have little knowledge of the complicated tax issues faced by people who have fallen behind in filing their returns or making tax payments.

"This is a company which is taking advantage of people, and unfortunately when people see it on TV, they do believe in it," Minnesota Attorney General Lori Swanson told ABC News. "When you call, you think you're talking to a tax professional. You're really talking to just a salesperson who's trying to get you to sign up."

TaxMasters signed a settlement with the Minnesota attorney general's office last August in which it did not admit wrongdoing, but agreed to abide by a long list of business practices in order to continue doing business in Minnesota. In addition to paying $500,000 into a fund to be divvied up among former TaxMasters customers, the company agreed to record all its sales calls with Minnesota residents and hand them over to the attorney general's office, stop using the phrase "flat fee," stop referring to former IRS agents working for the firm except when warranted, and add no additional fees to customers' accounts except when authorized via writing or recorded phone call. The agreement also applies to any other tax resolution firm "controlled" by Cox. Failure to abide by the settlement would make TaxMasters and Cox ineligible to do business in Minnesota and trigger a $400,000 penalty.

Cox declined to be interviewed by ABC News, and in a written statement he did not address the specific allegations in the two states' lawsuits. TaxMasters has denied the allegations in the lawsuits and Cox said the company "prides itself on honest customer service, a transparent process with our customer, and seeking fair treatment from the IRS."

At the heart of the problem, says Attorney General Swanson, is a requirement that customers pay an upfront fee ranging between $2000 and $8000.

"When you pay these upfront, advanced fees, now you're signed up, you're stuck, and the promised help doesn't materialize," she told ABC News.

Audio tapes of some sales calls, turned over to the attorney general by TaxMasters, prove the point, she says.

Salespeople tell potential customers TaxMasters is 97 or 98 percent successful in reducing the amount of taxes owed.

"You're owing $19,000," the TaxMasters salesman tells a customer on a recording provided to ABC News by the attorney general.

"I mean we can get you down to basically next to nothing," he continues. "I think we are the most successful tax resolution company. We're 97 percent successful," the salesman says.

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"Not true," said Attorney General Swanson. "It's another falsehood of this company. These salesmen tell people that to sign them up, but they don't deliver on those promises."

The IRS says only a small number of taxpayers ever qualify for such a substantial reduction in taxes owed.

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