TaxMasters Accused of Fraud and Deception

Despite accusations in two states of deceptive business practices, the Houston-based tax resolution company TaxMasters continues to spend millions saturating CNN, Fox News and other cable channels with commercials promising to help Americans facing problems with the IRS.

"This is a company which is taking advantage of people, and unfortunately when people see it on TV, they do believe in it," said Minnesota Attorney General Lori Swanson, who has accused the company of fraud and deception in a civil action.

The Texas attorney general has filed a similar lawsuit, alleging the company unlawfully "engaged in false, misleading, and deceptive acts and practices."

An investigation airing tonight on World News with Diane Sawyer and Nightline will examine whether TaxMasters' promises are too good to be true.

In a statement, CNN said the network was "aware of pending legal activity" and had been told by TaxMasters that it was working to address the claims with the state authorities. "We continue to monitor any activity for developments or resolution, and will further evaluate our relationship as it becomes necessary," the network said in the statement.

Fox News acknowledged receiving viewer complaints. "Anytime we have received a complaint about TaxMasters we forward it to them and tell them they have five working days to resolve the complaint," said a Fox News spokeswoman. While the spokeswoman did not disclose the number or nature of the complaints, she said they have all been resolved.

The television commercials feature TaxMasters' red-bearded founder and CEO, Patrick Cox, who claims his company's staff of former IRS agents and tax professionals "have helped many good people just like you." The TaxMasters ad blitz has been a driving force in the company's soaring corporate revenues. The company, which went public last year, brought in $45.7 million in 2010, a three-fold increase in two years, according to filings with the Securities and Exchange Commission.

The company linked "an increase in advertising expense" to "increased sales volume" in its year-end filing.

The Minnesota attorney general says many of the company's employees are skilled tele-marketers who have little knowledge of the complicated tax issues faced by people who have fallen behind in filing their returns or making tax payments.

"When you call, you think you're talking to a tax professional," said Swanson. "You're really talking to just a salesperson who's trying to get you to sign up."