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It is with an inordinate amount of joy that I relay the news that Tax Masters — the “tax resolution” company whose commercials offering to reduce or eliminate IRS deficiencies became a staple of late night television, giving rise to parodies by Saturday Night Live, among others — has filed for bankruptcy.

In this case, it’s not just our typical schadenfreude at work; we’ve had a bit of  a personal vendetta against the company since a good buddy of ours sheepishly confessed to us that he paid Tax Masters several thousand dollars to help with a large unpaid tax bill, only to get the runaround whenever he tried to gauge the company’s progress. The standard response coming out of Tax Masters was along the lines of “We’ll need another installment payment from you before we can continue to pursue your case,” causing him to eventually abandon hope of receiving the help he had paid for and leaving him $4,500 deeper in debt.

My problem with Tax Masters is that like the makers of the shake weight and Axe Body spray, they prey on the desperate, offering quick solutions to deep-rooted problems.

As any CPA knows, negotiating a successful Offer in Compromise can be a long, arduous, and most importantly, unpredictable process. The likelihood of success is largely dependent on the specific facts: the client’s financial picture and compliance history, the size of the deficiency, and the reasonableness of the offer. To wit: in 2010, the IRS received 57,000 OIC applications, but only 14,000 were accepted.

According to Tax Masters’ three-page bankruptcy filing, the company has less than $50,000 in assets and up to 5,000 creditors with claims nearing $10,000,000, many of whom our former clients like my friend who want to be made whole, but thanks to bankruptcy protection, will likely never see a dime. From Janet Novack at Forbes:

According to a report on Houston’s KHOU this morning, the bankruptcy filing “comes as the Texas Attorney General’s Office is set to begin a trial against the tax resolution firm for misleading consumers under Texas’ Deceptive Trade Practices Act.”

Texas sued TaxMasters in May 2010…alleging that TaxMasters misled consumers by offering an installment payment plan for its fees to prospective customers, without disclosing it wouldn’t start working on a case until it got all its money—even if that meant key Internal Revenue Service deadlines were missed. Last month, KHOU’s I-Team reported that consumer complaints about TaxMasters were continuing to pour into the state.

Coming on the heels of the untimely demise of JK Harris and Roni “The Tax Lady” Deutch — two other “debt resolution” pitchmen — the Tax Masters’ bankruptcy offers a stern if painful reminder to taxpayers to steer clear of late night TV snake oil salesmen. If you find yourself owing the IRS back taxes, hire a lawyer, a CPA or an enrolled agent.

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