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Tax Resolution Firm TaxMasters Hit With $195 Million Verdict

A Texas jury slammed a tax resolution company with a $195 million verdict for damages after ruling that the Houston-based firm and its founder misled and defrauded customers, a Texas jury ruled March 30 (Texas v. TaxMasters Inc., Tex. Dist. Ct., No. D-I-GV-1O-000486, verdict 3/30/12).

The jury in the Texas District Court, 200th Judicial District, in Travis County (Austin), found TaxMasters Inc., its founder and Chief Executive Officer Patrick Cox, and its predecessor company TMIRS Enterprises Ltd. engaged in false and misleading practices in operating their tax resolution business.

A Texas jury has ordered TaxMasters Inc. (Pinksheets: TAXS) and CEO Patrick Cox to pay $195 million in customer restitution and civil penalties for defrauding customers and violating the Texas Deceptive Trade Practices Act. The jury awarded over $113 million as restitution for consumers and over $81 million in civil penalties. In addition, $14.6 million in restitution and $31.25 million in civil penalties was awarded against Cox directly. The jury also awarded the Texas Attorney General's office $1.046 million in attorneys' fees, with the amount being evenly divided among the three defendants

Texas Attorney General Greg Abbott said Friday that the Houston-based tax resolution firm violated the law 110,000 times and would pay $113 million to customers who paid fees for company services, along with $81 million in civil penalties and $1 million for attorneys' fees.
The jury ruled that TaxMasters had misled customers through aggressive TV advertisements that falsely claimed the company could work with the IRS to postpone or stop wage garnishments or levies and liens on property. TaxMasters failed to disclose to customers its no-refund policy and did not start work on cases until customers had paid in full, even if it missed IRS deadlines, the jury ruled.

Between 2005 and 2012, the Texas attorney general's office received more than 800 customer complaints about TaxMasters. The Texas attorney general had brought a suit against TaxMasters in 2010. In early March, a day before the trial was set to begin, the company filed for bankruptcy in a South Texas court, citing up to $50,000 in assets and up to $10 million in liabilities.

The company's move to have the trial delayed was denied. Regulatory filings showed that by March 31, 2011, the company had $4.9 million in assets and $21.6 million in liabilities.

Read more at: Tax Times blog

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