J. K. Harris Settles Deceptive Ad Charges
Company took consumers' money, did nothing, states charged

June 16, 2008 | ConsumerAffairs.com

JK Harris airs a national TV ad campaign promising consumers it can settle consumers' debt with the IRS for "pennies on the dollar." Eighteen states sued, claiming the ads are deceptive.

In a settlement J.K. Harris has agreed to stop misleading consumers about its services and to pay $1.5 million in restitution.

"This company took advantage of people who paid for tax assistance and, in some instances, profited by taking their money and not giving them any help at all," said Massachusetts Attorney General Martha Coakley. "This agreement will ensure that this firm is honest with its clients and provides refunds if they are unable to assist them."

The Attorneys General for 18 states entered into a consent judgment with JK Harris and Company, L.L.C of Charleston, South Carolina, and its president, John K. Harris. According to the complaint, JK Harris did not help consumers with their tax problems as advertised and refused to give refunds when consumers complained that promised services were never completed.

The complaint alleges that JK Harris regularly advertised that it could help people who owed back taxes to the IRS by filing an Offer in Compromise (OIC) on their behalf and consumers would only have to pay a small percentage of what they owed. An OIC is a program implemented by the IRS to assist consumers who owed back taxes as a legitimate alternative to declaring a case not collectible.

JK Harris charged money upfront for this service without actually determining if consumers qualified for an OIC or while knowing that consumers in fact didn't qualify. The IRS accepts only a small number of these kinds of cases. In many cases, JK Harris did not even apply to the IRS to assist consumers as promised, but still refused to give those consumers their money back, the complaint alleged.

The complaint detailed other issues:

It said JK Harris regularly advertised that it had more than 450 offices nationwide. Typically, however, the person handling a consumer's OIC was actually located at the JK Harris home office in Charleston, South Carolina. If a consumer wanted to meet with a JK Harris representative about their file they had to physically travel to Charleston.

The other offices were reportedly staffed by sales representatives who could not assist consumers with their tax problems.

JK Harris also claimed that consumers' files would be handled by "tax experts" or "ex-IRS agents" when in fact, the states charged, the individuals handling the cases did not fit those descriptions and did not have tax expertise. JK Harris case managers changed frequently, and consumers complained that they often had to provide the same information to the company several times.

Under the terms of the consent judgment, JK Harris must make clearer disclosures to consumers and refund them if the company is not able to work out a compromise with the IRS. The company must tell consumers under what circumstances they might qualify to reach a compromise with the IRS on back taxes and provide an accurate percentage of how many OIC offers the IRS accepts. The company must also refund consumers' money if the IRS does not accept their case.

TAX REPORT / WSJ

By Tom Herman

Wiping Out
Your Tax Debt
Gets Tougher

IRS Tightens Rules, as Firm
That Acts as Middleman
Settles Cases With 18 States
July 23, 2008; Page D1

It's getting harder for taxpayers in debt with the IRS to negotiate a deal to pay a small fraction of what they owe. But turning to a private company for help may backfire: The nation's largest tax-resolution company recently settled with 18 states over allegations that it misled consumers and failed to produce results.

Tax-resolution firms advertise their expertise in getting tax collectors off your back, which can include a compromise deal with the Internal Revenue Service and taking care of state-tax issues. Such pitches may sound particularly appealing these days, with the housing market in disarray and stock prices in a deep slump. But consumers could find themselves out thousands of dollars in fees and still not have a deal.

While the IRS does negotiate with financially strapped taxpayers each year, its "offer in compromise" process is typically very time-consuming and cumbersome -- and the agency rejects most taxpayer offers. It accepted only about 12,000 compromise offers in fiscal 2007, down from 20,000 as recently as 2004. The number of offers received fell to 46,000 in 2007 from 106,000 in 2004.

IRS officials say the trend reflects several factors, including rule and procedure changes they say have led to fewer frivolous or incomplete taxpayer offers. Other factors include an application fee imposed in late 2003 and a law effective in July 2006 requiring most applicants to make an upfront, nonrefundable partial payment when they apply. Officials hoped to discourage people from making unrealistic offers aimed mainly at stalling tax collectors.

Critics say the program needs to be overhauled. In a recent report to Congress, IRS National Taxpayer Advocate Nina Olson emphasized her concern over "rules and procedures that limit the accessibility and use" of the compromise program.

Many people hire private companies to haggle for them, but that isn't always the best strategy. Besides having to pay upfront fees that can reach into the thousands of dollars, some people contend companies don't deliver what they promised. After receiving numerous such complaints, state officials sued JK Harris & Co., which calls itself "the nation's largest tax resolution company."

Recently, officials announced the company and various entities had signed settlement agreements with 18 states -- including Arizona, California, Florida, Illinois, Massachusetts, North Carolina, New York, Ohio and Pennsylvania -- that include paying consumers a total of $1.5 million in restitution and changing the company's advertising claims.

"Many consumers paid for tax help and got nothing but headaches in return," said North Carolina Attorney General Roy Cooper. "Now this firm has agreed to be upfront with people and pay them refunds if it can't help them." Massachusetts Attorney General Martha Coakley said the company "took advantage of people who paid for tax assistance and, in some instances, profited by taking their money and not giving them any help at all."

John K. Harris, chief executive and president of the North Charleston, S.C., company, denies charges of wrongdoing. He says the company agreed to settle with the states because it already had spent millions of dollars in legal fees and concluded that settling was the best way to resolve the issue, "get it off the radar screen," and strengthen the company and the industry.

Mr. Harris says the problem was mainly due to taxpayer misperceptions of what the company could do for them. He says the company has helped many customers, and that complaints represent a tiny percentage of the total. "You're going to get complaints in this industry," he says. "That's all there is to it." JK Harris continues to grow, he says, adding that revenues this year will be around $100 million.

The company also said it's pleased by the recent settlement with the states. "For the first time in the short history of our industry, we now have a set of guidelines for advertising and operating," a company statement said.

Among former JK Harris customers upset by their experience is Susan Brennan of Clayton, N.C. She says she and her husband paid the firm $4,550 several years ago for help in filing several years of back taxes and applying to the IRS and the state for a compromise. She says the company omitted major deductions she had mentioned, asked for more money to fix those mistakes, and didn't provide further help when she declined to pay more.

Ms. Brennan says she later got help from a local accountant, who charged much less than Harris. "It's a horrible thing for them [JK Harris] to continue to be on the TV stating how they can help you when they don't help you," she says. She filed a complaint with the state attorney general.

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JK Harris isn't the only tax-resolution company that has faced consumer complaints. For example, New York City's Department of Consumer Affairs said in late 2006 that the law firm of Roni Lynn Deutch of North Highlands, Calif., agreed to pay $300,000 to settle the city's lawsuit alleging deceptive advertising of tax services. That included $200,000 for restitution to customers and $100,000 in fines to the city. An assistant to Ms. Deutch said Tuesday that Ms. Deutch couldn't be reached to comment.

In 2004, the IRS, without naming any names, warned the public to beware of "unscrupulous promoters" preying on unsuspecting people in deep financial trouble. These promoters "make money by inappropriately advising indebted taxpayers to file an application for an offer in compromise with the IRS, promising unrealistic results, even when the taxpayers do not meet the requirements of the program," the IRS said. "This bad advice costs taxpayers money and time."

So what is someone in financial straits supposed to do? Here are a few options to consider and advice from accountants, enrolled agents and other tax advisers.

Installment agreements. The IRS set up nearly three million new installment agreements with taxpayers in fiscal 2007, compared with about 2.5 million agreements in 2004, says an IRS spokesman. "We're reaching more agreements with taxpayers than ever before, and more of them provide for full payment than in the past, which we think is a positive trend," says Fred Schindler, the IRS's director of collection policy.

Installment agreements usually require equal monthly payments that result in full payment of what you owe. But there's another option: If you can't pay in full by the end of the 10-year period in which the IRS normally can collect the tax from you, you might qualify for a "partial payment" installment agreement, though these are much less common than full-pay agreements, says the IRS spokesman. See IRS Publication 594 on the IRS Web site for details.

Offers in compromise. If you can't manage a regular installment agreement, then you can consider asking the IRS for a compromise agreement. The IRS is authorized by law to compromise with taxpayers who can demonstrate they're in deep financial distress and can't ever reasonably be expected to pay everything they owe.

The idea is to enable the government to collect at least something and whittle away at the large amount of uncollected debt on the IRS's books -- as well as to give people in dire financial straits a way to resolve their tax debts and get on with their lives.

Part of a taxpayer-protection law enacted a decade ago gave the IRS a new basis for accepting offers. It allowed the IRS to consider "economic hardship" factors when considering applications. Previously, the IRS had said, it could accept an offer only when there was "doubt" about whether the full tax debt could ever be collected or whether it was owed.

Other options. If you run into problems going through normal IRS channels, consider contacting the IRS Taxpayer Advocate Service, an independent organization within the IRS designed to help taxpayers experiencing significant hardship. For details on how to reach this unit, see the IRS Web site. You may want to turn to a professional you know and trust, such as a lawyer, enrolled agent or accountant.

Another option: If the IRS decides you can't pay any of your tax debt, it may "temporarily delay collection until your financial condition improves," IRS Publication 594 says. But your debt will increase "because penalties and interest are charged until you pay the full amount." During a temporary delay, "we will again review your ability to pay" and may also file a tax lien.