Ken Paxton

Friday, March 30, 2012

Houston-Based TaxMasters and Founder Patrick Cox Ordered to Pay Over $195 Million For Defrauding Customers in Texas and Nationwide

AUSTIN Texas Attorney General Greg Abbott released the following statement after a Travis County jury returned a $195 million verdict against Houston-based TaxMasters, Inc., its predecessor companies and its founder and chief executive officer, Patrick Cox, for violating the Texas Deceptive Trade Practices Act:

Today’s decision marks a significant victory for the Texans and TaxMasters customers nationwide who sought help from TaxMasters with their income tax debts and were taken advantage of in the midst of a national economic downturn. While the TaxMasters CEO made hollow promises about fighting for taxpayers and their pocketbooks in television ads, the evidence proved that the firm didn’t even bother to show up when it came time to fulfill those promises, but instead misled and defrauded their customers.

In an apparent effort to avoid the State’s enforcement action, TaxMasters filed for Chapter 11 bankruptcy protection just one day before the jury trial was set to begin. Citing the firm’s bankruptcy petition, TaxMasters CEO Patrick Cox sought to delay the trial, but his request was denied and the trial proceeded as planned. After an eight-day trial, the jury found that TaxMasters, its predecessor companies and Patrick Cox committed over 110,000 violations of the Texas Deceptive Trade Practices Act and ordered the defendants to pay a total of over $195 million. Of that, over $113 million is restitution for fees TaxMasters’ customers paid to the firm, and $81 million was further awarded in civil penalties.

Breakdown of the verdict

Consumer restitution: $113,099,820
Civil penalties: $81,205,000
Attorney fees: $1,045,998
Number of Violations: 110,383

Facts of the case

The State’s enforcement action against TaxMasters, Inc. was filed in May 2010.
According to the State’s enforcement action, the so-called tax resolution firm misled Texans by aggressively advertising its services to federal taxpayers who have received notice from the IRS of an audit, garnishment, lien, levy or tax deficiency.
TaxMasters misled customers about their service contract terms, failed to disclose its no-refunds policy, and falsely claimed that the firm’s employees would immediately begin work on a case despite the fact that TaxMasters did not actually start to work on a case until its customers paid in-full for services, even if that delayed response meant taxpayers missed significant IRS deadlines.
TaxMasters also failed to contact and consult with the IRS on the client’s behalf, appear on the client’s behalf at an IRS audit or hearing or postpone or stop a wage or bank account garnishment or stop a levy or lien against a client’s property.
From 2005 to 2012, the Texas Attorney General’s Office received 891 consumer complaints against TaxMasters.
The case was handled by Assistant Attorneys General Nanette DiNunzio, Bruce Griffiths and Jennifer Roscetti. The trial team also consisted of legal assistants Pam Yediares and Pauline Sisson.

NOTE: The Texas Attorney General’s Office will actively participate in the bankruptcy case to seek to recover restitution for customers.