TaxMasters Founder Clashes With Bankruptcy Liquidators

Perhaps no one deserved a family vacation last week more than TaxMasters Inc. founder Patrick Cox, whose signature ginger beard has no doubt sprouted gray hairs since his disgraced nationwide tax-relief firm collapsed into bankruptcy in March.

But Cox’s holiday peace was broken by the team of financial professionals who were ordered by the court to break down his fraud-riddled Houston company and sell it for parts—leading to a nasty spat between both groups in court documents.

Cox left behind the wrong combination to a safe that liquidators sold and promised to deliver to its new owner on Saturday. When Cox and his attorney ignored requests for the right combination during the second half of the July 4 holiday week, an attorney for the liquidating trustee filed a motion with the U.S. Bankruptcy Court in Houston to compel him to disclose it or pay for the consequences.

“To the extent that the estate incurs an expense associated with a locksmith, the trustee requests that this court order Cox to reimburse the estate for such expense,” said Texas attorney Heather Potts, who was hired by the case’s liquidating trustee to help execute sales that would raise money to pay off the firm’s debts.

Cox’s attorney, who received an email from Potts at 2:18 p.m. Friday about the court-filed demand, was not charmed.

“What in the world are you doing?” wrote back Cox’s attorney, Leonard Simon. “Did I not tell you that Mr. Cox is on vacation until Monday?”

Civility eroded further down the email chain, with Simon at one point reminding Potts that “what goes around in this legal community comes around.”

“I am astounded by your conduct,” he wrote.

Potts, however, declined to accept Simon’s morality check.

“My sincerest apologies that [my boss’s] need to administer this case has continued despite Mr. Cox’s vacation,” she said. “Of all the people in this case who need to be worried about karma—I’m not one of them.”

That would likely be a stinging reference to the company’s years of consumer-protection violations and the $195 million judgment that followed from a Texas jury, which determined that the firm broke promises that it could help thousands of customers trim their tax bills.

TaxMasters said it could cut tax debt by as much as 90% and stop the U.S. Internal Revenue Service’s collection efforts. Cox, an accountant, founded the company in 2001 and starred in its reel of low-budget, after-hours commercials that targeted taxpayers who were hit with an audit notice or a tax-deficiency notice.

But the 98-worker company turned controversial several years ago as consumer complaints surfaced—amplified by local press—and prompted investigations in states such as Minnesota and Florida. Drawing on information gathered from nearly 1,000 consumer complaints, a Texas lawsuit said that TaxMasters routinely failed to disclose the fine print about its nonrefundable fees during sales calls.

Its fees ranged from $1,500 to more than $9,000, the lawsuit said.

Soon after the once-publicly traded company filed for bankruptcy protection on March 18, a judge ousted Cox and put in place a trustee to wind down its operations. Since then, that trustee has sold off office furniture and donated leftover office supplies to a local school district. It’s unclear how much money the piecemeal sales of assets have brought in so far, along with the proceeds from the controversial safe that Cox ultimately provided the password to.

“The provision of the safe combination proves what Trustee’s counsel has long suspected—that people can respond to email requests even while on vacation,” Potts remarked in court papers.

Write to Katy Stech at [email protected].