TaxMasters Ordered to Pay $195 Million by Texas Jury

TaxMasters Inc. (TAXS) and its Chief Executive Officer Patrick Cox were ordered to pay $195 million by a Texas jury who found the bankrupt tax-resolution business liable for 110,000 violations of state law.

The verdict includes $113 million in restitution to the firm’s customers, $81 million in civil penalties and $1 million in attorneys fees, Texas Attorney General Greg Abbott said in a statement today. The jury in Travis County found the Houston- based company and Cox liable for violating the state’s Deceptive Trade Practices Act after an eight-day trial, according to the statement.

The company, known for its television commercials that feature Cox, filed for bankruptcy protection March 18 after it came under fire from multiple states’ attorneys general. The commercials, which have been satirized on NBC’s “Saturday Night Live,” duped unsuspecting citizens, according to the attorneys general.

“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,” Abbott said in the statement.

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The company advertised its services to taxpayers who received audit, garnishment, tax deficiency or other notices and misled customers by not disclosing its no-refund policy and by claiming its employees would start on a case immediately while in fact customers had to pay in-full before any work was done, according to Abbott’s statement.

TaxMasters also failed to consult with the Internal Revenue Service on behalf of customers and failed to appear at audits and hearings to postpone or stop garnishments and liens, according to the statement. Abbott’s office received 891 consumer complaints against TaxMasters from 2005 to 2012, he said.

Johnie Patterson, a lawyer who represents TaxMasters in the bankruptcy case, didn’t immediately return a call to his office for comment on the verdict.

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net;

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net