April 14, 2011 -- 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."
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.
He said at first he had a good working relationship with Patrick Cox, the company's founder, CEO and highly visible on-air spokesman. Cox, a car enthusiast who used to drive a Bentley to work, even took Lee to see the racetrack he was building in Texas.
But Lee said that people working at TaxMasters told him that Cox was unconcerned with questions about the company's business practices. He said they told him, "Pat really doesn't care about what happens, you know. If he gets all of his money, millions of dollars upfront and something happens, he's got his." And Lee said he has no doubt Cox knew how his business was run, with sales representatives making promises that, in most cases, couldn't be kept.
Tapes of actual TaxMasters sales calls show the deceptive practices alleged by the Texas and Minnesota lawsuits, including one in which a salesman promises the IRS stops collection efforts once a customer hires TaxMasters.
"That's what the IRS, consultation does," says the salesman. "It pulls your name, it pulls your number out of the collection process."
Click Here To Listen To The TaxMasters Sales Call
Minnesota Attorney General Lori Swanson, whose office obtained the taped calls from TaxMasters, told ABC News that TaxMasters can't automatically stop collections from happening. "In fact, when you hire this company, sometimes the situation even gets worse. They may garnish you, they may put down liens."
In another call, the TaxMasters sales representative claims the company can easily get back taxes reduced to pennies on a dollar.
"You're owing $19,000," says the salesman. "I mean, we can get you down to basically, next to nothing, and our job, and our goal is to get you to zero. We're 97 percent successful.
Click Here To Listen To The TaxMasters Sales Call
Attorney General Swanson calls that "another falsehood" and that the person making the claim is "a salesperson, who is trying to get you to pay thousands of dollars to the company, not somebody with tax expertise." The IRS will only forgive a tax debt if the taxpayer has no assets and no hope of earning money to repay a tax bill.
TaxMasters Denies Allegations
TaxMasters CEO Cox declined to be interviewed by ABC News, and in a written statement he did not address the specific allegations in the Texas and Minnesota 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."
Lloyd Lee told ABC News he agreed with Attorney General Swanson's assessment of TaxMasters' business practices "wholeheartedly."
"I was there," said Lee. "After being there six months, I saw what was going on. But there was nothing you could do about it. If you tried to do something about it, you'd end up unemployed.
Ultimately, claims Lee, that's what happened. He says he was fired in 2010 after 16 months at the firm when he began to raise questions internally.
In his statement, Patrick Cox said Lee is a former employee who was let go because of his performance and that he has a financial motive to criticize TaxMasters because he now operates a rival tax business that he started with other former TaxMasters employees.
Click Here to Read Patrick Cox's Full Statement to ABC News.
Lee disputes the company's version of his departure, and stands by his criticisms of TaxMasters. He adds, however, that TaxMasters may not be unique among tax resolution firms. "You know, TaxMasters isn't alone in this," said Lee. "Every big company that does this, they've got problems."