TaxMasters is Hit With Minnesota Lawsuit for Fraud and Deceptive Trade Practices

TaxMasters has been served notice of a lawsuit filed by Minnesota Attorney General Lori Swanson. Swanson’s suit is for consumer fraud and deceptive trade practices in regards to TaxMasters’ advertising and sales practices. It follows similar actions against TaxMasters by the state of Texas.

Swanson accused TaxMasters of the following abuses:

  • 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.

Swanson’s office noted that callers were provided inaccurate information about success rates and expected reductions in clients’ tax debts. TaxMasters’ tax consultants were quoted with some of the following claims:

  • “… 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.”

Television advertising was credited for helping increase TaxMasters’ revenue from $6.5 million in 2007 to $36.8 million in 2009. It has been noted that claims made in the advertising were toned down in late 2009 following scrutiny from federal regulators. However, the Minnesota lawsuit makes it clear that tax consultants were still making outrageous claims that the company’s results did not support.

The attorney general made it clear that hiring a tax representation firm is rarely a good idea for most consumers that owe tax debt. She cited regulatory action against other industry leaders, including Roni Deutch and American Tax Relief, LLC. Instead, she recommends contacting the Internal Revenue Service directly to work out an arrangement. That way, you save the $2,000 to $8,000 in advance legal fees which can instead be used to partially pay off your outstanding tax debt.

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