$195 Million Verdict Against TaxMasters for Defrauding Customers

A Texas jury has found TaxMasters and owner Patrick Cox liable for $195 million in damages. The jury decided that there was substantial evidence that TaxMasters defrauded thousands of customers for so-called tax relief services.

In anticipation of a jury trial that would likely lead to a massive judgment against the firm, Patrick Cox plunged the firm into Chapter 11 bankruptcy a day before the trial’s start date. Cox subsequently requested a delay for the trial, but his request was not approved.

Charges against the firm were numerous and widespread with 110,000 violations of the Texas Deceptive Trade Practices Act. Some of the firms documented violations include:

  • Misleading clients into believing the firm would begin working on their behalf immediately: The firm would actually do zero to assist a client until they had paid in full.
  • Failing to notify clients of no refund policy: Many clients were mislead about the terms of their service contract.
  • Failing to properly represent clients with the Internal Revenue Service: The firm often failed to appear or notify the IRS of certain actions on behalf of their clients.

Texas Attorney General Greg Abbott released the following statement after the jury decision:

“Today’s decision marks a significant victory for the Texans and TaxMasters customers nationwide who sought help from TaxMasters with their income tax debts and were taken advantage of in the midst of a national economic downturn. While the TaxMasters CEO made hollow promises about fighting for taxpayers and their pocketbooks in television ads, the evidence proved that the firm didn’t even bother to show up when it came time to fulfill those promises, but instead misled and defrauded their customers.”

For their actions, the firm is charged with restitution costs of $113 million, civil penalties of $81 million and $1 million in attorneys fees. The firm fully expected a large judgment, revealed by their haste to file for bankruptcy protection prior to the trial’s start.

The firm is one of many tax relief firms that have flooded the television, radio and internet with aggressive advertising and empty promises. Other large firms that are on the regulatory radar include the defaulted Roni Deutch law firm, Blue Tax, American Tax Relief and JK Harris.

Tax filers need to understand that while these firms may be able to assist with normal interactions with the IRS or state tax authorities, the average customer ends up in worse shape. After paying thousands of dollars in fees, they often receive either no reduction in penalties or interest, or simply a nominal amount that is dwarfed by the fees they paid to the tax relief firm.

With the action against TaxMasters, the jury sends a strong message to other tax relief firms that overstate their benefits or outright mislead their clients. They may rake in the profits now, but their punishment is coming.

Kenneth Long
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Kenneth Long

President at Debtors Unite
Kenneth Long is President of Debtors Unite, Inc. as well as President and Vice Chairman for Vision Credit Education, Inc. He served as a regional coordinator for the North Carolina Saves campaign. Long co-founded the Wake EITC Coalition along with Family Resource Center of Raleigh.

Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.

Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.

In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.

Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!

Favorite quote:

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

Thomas Jefferson
Kenneth Long
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