HOUSTON – The so-called tax-relief company TaxMasters is seeking relief of its own—in bankruptcy court.
The Houston-based firm filed a Chapter 11 bankruptcy petition literally in the 11th hour, just before midnight Sunday, and just before a scheduled trial in which it’s accused of deceptive business practices. In a Travis County courtroom Monday morning, the Texas Attorney General’s office argued the last-minute maneuvering was a ploy to wiggle out of the trial. State District Judge Orlinda Naranjo agreed and began with jury selection Monday afternoon.
Company founder and pitchman Patrick Cox was best known nationwide for its late night television commercials in which he talked tough against the IRS. Cox once spent millions a year on advertising, but in court documents listed assets of less than $50,000. It also estimated liabilities between $1 million and $10 million among creditors numbering between 1,000 and 5,000.
According to court documents, TaxMasters’ advertisements encouraged taxpayers to call its toll-free number for a “free consultation” with a “tax consultant.” But the state alleged callers are not connected to an employee qualified to give tax advice, but rather with a TaxMasters’ salesperson who recommends a “solution” for thousands of dollars. Furthermore, the AG’s office alleged TaxMasters offered payment plans to consumers, but failed to reveal that it would not begin work on a case until the entire fee was paid. In many cases, important IRS deadlines were missed, according to court documents.
The State of Texas originally sued TaxMasters in May 2010, but last month the I-Team exposed how consumer complaints continued to pour in despite the state’s enforcement action.
One of those alleged victims, Shayne Highfield, said he gave the company more than $3,000 and got nothing in return.
“They offered pennies on the dollar to me—50, 75 percent in the taxes that I owe,” Highfield said. “It was all a fabrication; it was all just a big lie.”
In court Monday, Cox’s attorney John Wauson said the company laid off most of its workers last week, stopped taking in new business, and effectively was shut down. Its offices in the 900 block of Town and Country Lane sit nearly empty.
Even if the State of Texas wins at trial, it’s unclear if consumers seeking refunds will ever see a dime given the bankruptcy petition.