State of Minnesota Sues Firm Promising IRS Help

The State of Minnesota has filed a lawsuit against TaxMasters, a Texas company it says promises much but delivers little.  TaxMasters uses television commercials to promise taxpayers that they will solve their tax problems.  But Minnesota Attorney General Lori Swanson has accused the company of charging exorbitant fees while not living up to its claims.

The Attorney General filed a lawsuit that alleges the company uses deceptive commercials over television and radio to attract clients, some of whom paid as much as $8,000 in fees upfront.  Over the last 5 years, over 500 Minnesota residents have used TaxMasters’ services.  Besides this lawsuit, TaxMasters also faces another suit brought against it by the State of Texas earlier in the year.

In the Minnesota lawsuit, the Attorney General alleges that TaxMasters often encourage taxpayers to use their credit cards to pay the fees or take it out of their savings accounts.  They promise that their customers will be represented by former IRS agents or tax professionals.  Tax debt relief companies such as TaxMasters have flourished during the economic recession and state and federal agencies have initiated laws and filed lawsuits to curb abuses by the ones who fail to deliver what they promise.

In a recent press conference, the Minnesota Attorney General expressed her outrage that TaxMasters and other such companies are taking advantage of taxpayers who want to do the right thing by seeking an advocate to help them resolve their tax problems only for the advocates to let them down.

TaxMasters’ lawyer, Chris Madel said his client has been trying to cooperate with the Attorney General’s office by asking for specific actions they were to take.  But instead of receiving information on these actions, they were slapped with the lawsuit instead.  The lawsuit is not the first initiative taken by the Attorney General’s office against tax relief companies.  Two years ago, Swanson’s office joined a multistate settlement with JK Harris & Co., one of the largest tax relief companies in the country.  The settlement had JK Harris agreeing to remove their advertising that claimed they could resolve taxpayers’ tax issues for ‘pennies on the dollar’, among other things.

Recently, the FTC enforced a new rule that prohibits tax relief companies from collecting fees upfront before providing services.  However, some firms claim this rule does not apply to their segment of the industry, prompting the FTC to announce that those firms would be exempted from the new rule while it studied the matter further.