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Minnesota Attorney General's Office

1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101

(651) 296-3353
(800) 657-3787

M - F 8 am - 5 pm

TTY:(651) 297-7206
TTY:(800) 366-4812

ATTORNEY GENERAL SWANSON SUES LARGE "TAX RELIEF" COMPANY FOR MISSTATING THE HELP IT WILL PROVIDE PEOPLE WITH TAX BILLS
Attorney General Warns Citizens About Firms That Exaggerate The Tax Help They Will Provide

Citizens Who Pay Thousands of Dollars In Advance Fees Minnesota Attorney General Lori Swanson today filed a lawsuit against TaxMasters, Inc.-a Houston-based "tax relief' company that advertises heavily on television, radio, and the Internet-for overstating the tax help it will provide to citizens who pay the company advance fees of up to $8,000.

"The company gets worried people to pay thousands of dollars by overstating the help it will provide with their tax bills," said Attorney General Swanson. "This is the latest type of company we have seen target the misfortunes of people who are facing tough sledding in the bad economy."

The lawsuit alleges that the company got consumers to pay advance fees of $2,000 to $8,000 by misstating the help it would provide people with unpaid tax bills. In some cases, the company claimed it could substantially reduce people's tax bills by up to 90 percent, but then delivered little or no help. In other cases, the company falsely promised that it could stop IRS collection efforts against consumers who hired it.

Contrary to TaxMasters' promises, most citizens do not qualify for special IRS programs that reduce a person's tax debt. Attorney General Swanson said that while the IRS won't reduce most people's tax bills, it will work with them on repayment plans-something people can do on their own without paying a tax relief company thousands of dollars.

TaxMasters heavily advertises on late-night television. In 2009 the company spent nearly $14 million on its television, radio and Internet advertising campaigns. Consumers who call TaxMasters talk to a "tax consultant," who is actually a salesperson. A job ad for this position states: "Previous tax knowledge is not required, but a firm understanding of the sales process and of selling services ... is a strong plus." Salespeople often make unrealistic promises of the company's ability to help in order to dupe consumers into paying thousands of dollars in advance fees. The company also falsely told some consumers it could put an immediate stop to collection efforts, such as wage garnishments, levies, or liens. The lawsuit alleges that TaxMasters sometimes left people in worse financial shape after paying the company's advance fees, failing to respond to important deadlines or requests of tax authorities.

The lawsuit alleges that TaxMasters salespeople told consumers things like:

• "... based upon our success rate and our experience, on average, our clients see a savings of anywhere between 80 and 90% of what the IRS claims they owe."
• "We're highly successful; we are the most successful tax resolution company. We're 97% successful."
• "We'll save you anywhere from 65 to 90% is our goal on ... savings off the total tax debt. 97% of the time we reach that goal, the other 3% are the people who just flat out lie to us."

Among other things, TaxMasters:

• Overstated its ability to reduce or settle peoples' tax obligations.
• Charged consumers thousands of dollars in advance fees for help in reducing tax bills that the company knew or should have known would not be negotiated by the IRS.
• Failed to deliver on its promises and sometimes even failed to meaningfully contact the IRS.
• Failed to make refunds to consumers who complained that the company did not take the promised action.

TaxMasters, a publicly-traded company, has seen explosive growth in the last few years. In an April 21, 2010 letter to shareholders, the company attributed this growth in part to "the recession and rising unemployment" which have "increased the number of at-risk Americans, those who are most likely to have the severe financial difficulty that causes problems meeting IRS obligations." In 2007, TaxMasters reported revenue of $6.5 million. By 2009, its revenue was $36.8 million, up 466 percent from 2007. For the first three quarters of2010, TaxMasters' revenue was ahead of2009 figures for the same period by 21.8 percent.

Attorney General Swanson said that "tax relief' companies are the latest type of firms
that target citizens who are facing tough times in the bad economy. In recent months, the
Attorney General's Office has filed lawsuits against mortgage assistance companies that charge thousands of dollars in advance fees to modify peoples' home mortgage but don't; debt negotiation companies that charge thousands of dollars in advance fees then fail to negotiate with creditors; and health discount companies that offer people struggling with high premiums affordable health insurance coverage that fails to provide financial protection.

According to the IRS Data Book, the number of taxpayers with delinquent accounts grew
from 7,074,000 in 2006 to 9,667,000 in 2009. During the same time period, the amount of
unpaid taxes, penalties, and interest owed to the IRS went from $69 billion to $103 billion.

Tax Masters is a Nevada corporation with its headquarters in Texas. The lawsuit was
filed in Hennepin County District Court and alleges that the company engaged in consumer fraud and deceptive trade practices. It seeks restitution for consumers, injunctive relief, and civil penalties.

This lawsuit is the latest in a series of nationwide enforcement efforts in recent months
against tax relief companies that charge consumers thousands of dollars in advance fees based on inflated promises. In May, 2010 the Texas Attorney General filed a lawsuit against TaxMasters, which is pending. In October, 2010 the Federal Trade Commission filed a lawsuit against another tax relief company, American Tax Relief, LLC. In August, 2010 the California Attorney General filed a lawsuit against another large tax relief company, Roni Deutch.

Last April, the Minnesota Attorney General's Office distributed a Consumer Alert entitled "Beware of Tax Relief Scams." Attorney General Swanson offers this advice to consumers:

• If you have tax problems and need outside help, consider hiring a local certified public accountant, tax specialist, or tax attorney.
• If you owe money to the tax authorities, consider entering into an installment payment plan. The IRS enters into about 3 million payment plans each year with taxpayers. A taxpayer who owes $25,000 or less in taxes, penalties, and interest may generally request an installment agreement online at the IRS website. You don't need a tax professional to help you obtain a routine installment payment plan.
• Remember, the IRS generally only reduces a tax debt for a limited number of citizens who face current and continuous dire circumstances and whose tax debt significantly exceeds their assets and their future earning potential. There are no tricks or secret strategies that tax relief companies possess that change the IRS eligibility requirements. As a general matter, if you have enough money to pay a tax relief company, the IRS probably will not reduce your tax debt.
• Some tax relief companies charge thousands of dollars in advance fees based on inflated promises of their ability to help. By hiring these companies, you may be squandering money that could be used to pay down your tax debt.

Individuals who wish to file a consumer complaint may contact the Minnesota Attorney General's Office by calling 1-800-657-3787 or 651-296-3353. Consumers may also download a Complaint Form from by clicking here and mail the completed form to the Attorney General's Office at: 1400 Bremer Tower, 445 Minnesota Street, St. Paul, MN 55101-2131.

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