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Suffering complaints, national tax service declares bankruptcy

Many California taxpayers have undoubtedly seen the television advertisements for large-scale tax firms that promise aggressive representation in tax cases with the Internal Revenue Service. Two of those firms, however, have already gone bankrupt, and a third sought bankruptcy protection this week.

Bankruptcy is arguably the least of the firm's problems. Its business practices have been the subject of scrutiny from individual clients and state authorities. During the last three years alone, greater than 1,000 people have complained to the Better Business Bureau about the company. In addition, two state attorneys general filed lawsuits against the company. One suit was settled last summer.

The complaints allege that the company, based in Houston, Texas, required complete upfront payments from clients before it would even pick up a client's file. In some instances, this practice caused deadlines to pass without any action on the company's part, subjecting the client to potential IRS penalties.

In other cases, the company promised clients that they would only pay pennies on every dollar they owed to the IRS. Such claims turned out to be overstated in some cases, and clients ended up receiving very little assistance on reducing their tax debt. In addition, the company often neglected to inform clients about its no-refund policy. This meant that clients lost money even if the firm missed deadlines or failed to deliver on exaggerated promises.

Owing money to state and federal taxing authorities can pose significant challenges. Taxpayers can protect themselves by seeking the help of a tax attorney, but it is important to choose one who is not only experienced, but also one who is diligent and will fight for the best interests of the client.

Source: CNNMoney.com, "TaxMasters files for bankruptcy," Chris Isidore, Mar. 20, 2012.

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