Former TaxMasters Manager Says Company 'Cheats' Customers

PHOTO: Lloyd Lee, former head of tax preparation at TaxMasters.
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A former manager at Tax Masters, a tax resolution firm now being sued by two different states for alleged deceptive business practices, claims the company cared more about making money than solving its clients' tax problems, and told sales representatives it was okay to lie to potential clients to get their business.

"You make money as fast as you can and it doesn't matter how you do it," said Lloyd Lee, who was head of tax preparation at Tax Masters until he was fired in 2010. "If you have to lie to a client to get money, you do it. That's the way they operated. It was a money machine."

Houston-based Tax Masters, which saw its revenues soar to $47 million in 2010, has been sued by the attorneys general of Texas and Minnesota for what they allege are deceptive business practices. In commercials that run regularly on Fox, CNN and other cable networks, red-bearded company founder Patrick Cox claims that TaxMasters will "stand between" its clients and the IRS, but officials in Minnesota and Texas say that desperate taxpayers who turn to TaxMasters – and pay thousands of dollars in upfront fees for their help -- may wind up even deeper in debt.

Lee told ABC News that when he went to work for TaxMasters in November 2008 as a tax preparation supervisor, he discovered that despite some good people at the company who wanted to "do right and do a very good job," the company's business practices made it hard to help taxpayers.

"The standard operating procedures of the company prevents that from happening," said Lee. "The main motive behind it was just to make money ... and greed."

The emphasis was on sales, not tax preparation, said Lee. Sales representatives outnumbered actual tax preparers by as much as four to one, he added, and almost none of the sales reps had any tax expertise. "Most of them had zero experience," said Lee. "In fact, I did tax returns for several salespeople and a couple of sales managers. If their title is 'Tax Specialist,' they should be able to do a simple 1040 easy. But that wasn't the case."

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As a result, he claims, TaxMasters was a year-and-a-half behind in its tax preparations when he arrived, with the IRS adding interest, and often penalties, as taxpayers waited. "They were 18 months behind in the process because you had all of this work coming in and not enough people to do it," said Lee. "If you sign a contract in January of 2008 and your file doesn't get looked at until November or December of that same year, you've lost a lot of money."

According to Lee, TaxMasters would further delay payment by not forwarding claims to the IRS until clients had paid their TaxMasters bills. The company commonly charges customers from $2,000 to $8,000 to resolve tax debts. Lee also claims that some sales representatives did not disclose hidden costs to customers and would charge customer credit cards before any contract was signed. Asked if he thought that meant customers had been "cheated," Lee said, "Of course, yes."

TaxMasters Sales Calls Recorded

After Lee had been with TaxMasters for four months, he was tapped as the new head of tax preparation. He told ABC News he was eventually able to get the work backlog reduced so that TaxMasters was four to six months behind in tax preparation instead of 18.

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