Press Release
For Immediate Release
June 12 , 2008
 
Media Contact: Robyn Ziegler
312-814-3118
rziegler@atg.state.il.us
 

MADIGAN SETTLES WITH TAX RESOLUTION COMPANY
FALSELY PROMISING TAX SETTLEMENTS FOR
“PENNIES ON THE DOLLAR”

Chicago – Attorney General Lisa Madigan today announced the settlement of an 18-state investigation of tax resolution firm J.K. Harris & Company and its two affiliated companies, JK Harris Financial Recovery Systems and Professional Fee Financing Associates. The settlement resolves allegations that the defendants, headquartered in Charleston, S.C., employed misleading advertising practices for their tax resolution services.

As part of the settlement, the companies will pay $1.5 million in restitution to consumers, and the states, including Illinois, will share in an additional pool of $300,000 to be paid by the defendants for the costs of investigating and litigating the case as well as for the states’ consumer education initiatives.

Attorney General Madigan’s office began investigating J.K. Harris & Company based on allegations that the firm misrepresented its ability to assist consumers in resolving their outstanding tax obligations with the U.S. Internal Revenue Service (IRS) and state taxing agencies.

Specifically, Madigan’s complaint against the defendants alleges that in luring consumers to purchase its services, J.K. Harris & Company claimed that it could settle consumers’ back tax obligations for “pennies on the dollar” and indicated that consultations would be provided by “tax professionals,” “tax experts” or “former IRS agents.” In fact, the vast majority of consumers who accepted J.K. Harris & Company’s offer did not speak to a tax professional, tax expert or former IRS agent. In addition, J.K. Harris & Company’s success rate is low because few taxpayers qualify to obtain “offers in compromise” (OICs) from the IRS. OICs are agreements between the IRS and taxpayers to allow taxpayers to resolve outstanding tax debts by paying less than the full amount owed. Importantly, the IRS uses OICs only in uncommon circumstances at the agency’s discretion once other avenues, such as repayment plans, have been explored and rejected.

“Consumers should be on the lookout for tax resolution offers that seem too good to be true,” Madigan said. “This agreement will help ensure that before signing up for these services, consumers are provided with accurate information concerning the limited nature of what these companies can offer due to the limited nature of the IRS OIC program.”

In some cases, the lawsuit further alleged, J.K. Harris & Company arranged financing for consumers to pay the contract fees through its affiliate Professional Fee Financing Associates, but the affiliate allegedly refused to release consumers from those financing contracts, even when J.K. Harris & Company failed to assist consumers in applying for the IRS OIC program as promised. The settlement requires the defendants to cease the alleged illegal conduct and to rescind contracts with consumers that resulted from those practices. In addition, the settlement requires that in its future business, J.K. Harris & Company must clearly explain to consumers the circumstances under which consumers might qualify to reach a compromise with the IRS on back taxes. J.K. Harris & Company also must reform its advertising and sales practices.

The third defendant in Attorney General Madigan’s complaint, J.K. Harris Financial Recovery Systems, allegedly operated as a credit services organization and mailed “urgent” messages to Illinois consumers advising them that a judgment had been entered against them and that the company could help consumers to avoid having their wages garnished and to re-establish their credit. In some cases, the judgment information was inaccurate and led consumers to believe that they owed a debt that they were unaware of or that they already had paid off. In fact, some consumers who received these solicitations never had such judgments entered against them, and some consumers had paid off the judgments described in the solicitations. The complaint alleges J.K. Harris Financial Recovery Systems violated both the Illinois Credit Services Organization Act and the Consumer Fraud and Deceptive Business Practices Act by failing to register with the Illinois Secretary of State as a credit services organization, collecting upfront payments for its services and making misleading representations about its services. As a result of the states’ investigation, J.K. Harris Financial Recovery Systems has ceased its operations.

Any Illinois consumer who filed a complaint with the Attorney General’s office or the Better Business Bureau, or who files a complaint on or before Sept. 10, 2008 will be considered for a partial or full refund from the $1.5 million national restitution pool. Consumers can obtain a complaint form online at http://www.illinoisattorneygeneral.gov/consumers/conscomp.pdf or by calling the Attorney General’s Consumer Fraud Hotline at 1-800-243-0618.

Assistant Attorney General Avonne M. Seals handled the case for Attorney General Madigan’s Consumer Protection Division.

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