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California taxpayers may be affected by case against TaxMasters

Two weeks ago we discussed the bankruptcy and legal troubles of TaxMasters, a national tax firm. That blog post noted that the company had settled a lawsuit filed by one state attorney general, but that it still faced another. That other suit came to a conclusion last week when a jury in the company's home state found that its practices repeatedly contravened the state's Deceptive Practices Act.

TaxMasters advertised frequently on television in California and around the country, touting its ability to work with the IRS to reduce a person's tax debt. According to the case made by the state attorney general, however, the IRS placed liens on the assets of some of the company's clients after TaxMasters neglected to engage the IRS about their cases. As mentioned in our prior post, the company also let vital deadlines pass without action, a practice that can lead to tax penalties.

The court ordered TaxMasters to pay a significant sum of money--$195 million--intended to penalize the company and return $113 million to clients. But since TaxMasters recently filed for bankruptcy, it is unclear how much anyone will receive. In its bankruptcy filing, it listed its assets at $50,000, while its liabilities were at least $1 million.

The state attorney general stated that customers were "taken advantage of" by TaxMasters. According to the state's case, the company did not inform clients of various aspects of their contractual relationship, such as the fact that the company did not issue refunds. The state has vowed to try to get as much money from the bankruptcy case for the company's former customers.

The judgment in this case emphasizes the necessity of carefully choosing an experienced and dedicated attorney to help with tax issues. IRS problems can have significant consequences, and taxpayers should consult with a tax lawyer who can help resolve those tax problems.

Source:, "TaxMasters slapped with $195M fraud judgment," James O'Toole, Mar. 30, 2012.

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