California Attorney General Jerry Brown has filed a $34 million lawsuit against TV’s “Tax Lady” Roni Deutch for orchestrating a "heartless scheme" that swindled thousands of people facing serious and expensive tax collection problems with the IRS.

"Tax Lady Roni Deutch is engaged in a heartless scheme that swindled people with tax problems," Brown said in a statement. "She promises to significantly reduce their IRS tax debts, but instead preys on their vulnerability, taking large up-front payments but providing little or no help in lowering their tax bills."

Deutch boasts that her tax resolution law firm, which has annual revenues of at least $25 million, is the largest of its kind in the nation, Brown noted. He added that she spends $3 million a year on advertising, much of it on late-night cable TV, and frequently offers tax advice on NBC's Today Show, CNN, and CNBC.

Desperate debtors turn to Deutch based on ads that feature fictional testimonials claiming she secured large reductions in the featured clients' federal tax debts.

For example, an ad entitled "It's Your Turn" features three clients whom Deutch claims to have "saved" from having to pay thousands of dollars to the IRS. In fact, those clients still owe the IRS the full amount of their taxes, plus interest and penalties, according to prosecutors.

Deutch’s office said it was preparing a statement in response to the lawsuit.

When potential clients call Deutch's office, sales agents employ high-pressure sales tactics plus a series of misrepresentations and false promises to persuade them to retain her firm, Brown charged. The sales agents claim Deutch's success rate in dealing with the IRS is as high as 99 percent. But the percentage of clients whose tax bills Deutch actually reduces is a mere 10 percent, according to prosecutors.

Rather than cut clients' debts, Deutch often escalates them. She places clients in an endless loop of requests for duplicate documents that increases her fees and, due to further delays in payments to the IRS, increases clients' IRS fines and penalties, said prosecutors.

One woman from Pico Rivera, who owed the IRS $13,000, turned to Deutch after seeing a TV ad. She paid Deutch a $1,900 retainer, but by the time the Deutch firm ended its representation, she owed the IRS hundreds of dollars more in interest and penalties, and the IRS had placed a levy against her Social Security benefits. Despite failing to take any effective action on her behalf, Deutch refused to refund the woman’s retainer by falsely billing her for time the firm did not spend on her case. Deutch regularly uses false billing statements to deny her clients’ refund requests, according to the AG.

Hundreds of clients have filed complaints with the Attorney General and other government agencies, describing Deutch's failure to reduce their IRS debts as she advertised and her refusal to refund retainers of as much as $4,700.

Brown's lawsuit says thousands of consumers in California and around the country have fallen victim to Deutch's unlawful scam, losing millions of dollars that could have been used to pay their IRS tax liabilities. The lawsuit charges that Deutch operates a deceptive tax resolution scheme that employs "a bevy of false promises and misrepresentations."

Brown's action seeks to permanently prevent Deutch from engaging in such unfair business practices and false advertising, and force her to pay victims restitution of at least $33.9 million plus civil penalties.

Brown's lawsuit follows the consumer alert he issued on March 30, 2010, warning consumers to be wary about tax debt scams. Brown, a former governor of California from 1975 to 1983, is again running for the governor’s office in the November elections.

In the complaint, Brown’s office charged that Deutch’s legal staff charges high fees for their purported services. Depending on which IRS program they recommend and the amount of the potential client's tax debt, the legal fees range from $1,600 to $4,700. Deutch requires that at least a portion of the fee be paid up front in order to retain the law firm, and that any balance be paid in monthly installments.

Systematic bonuses are used at every level of the law firm to incentivize employees to put their own interests and the interest of the firm ahead of their clients' interests, according to the complaint. “From the sales pitch to the decision about whether to refund a client's payments, and at every stage in between, defendants use bonuses to motivate their employees to focus all of their energy on enhancing defendants' profits and to ignore their clients' interest in securing tax debt relief from the IRS,” said the complaint.

Despite claims in TV ads that the firm saved three particular clients from having to pay up to $35,000 to the IRS, prosecutors claim that the firm did not save the clients any money at all.

“In fact, defendants did not save these particular clients any money, but merely placed them on currently not collectible status with the IRS, a kind of tax collection purgatory,” said the complaint. “Placing clients on currently not collectible status stops IRS collection efforts, but interest and penalties continue to accrue on the tax debt while the collection hold is in place ... . Moreover, the client is still liable for the entire tax debt. In fact, while the collection hold is pending, the IRS will normally also place a tax lien on the taxpayer's assets to protect the government's rights. Furthermore, if and when the client's financial situation improves, the IRS will remove the client from currently not collectible status and institute collection proceedings on the entire tax debt. In that same advertisement, defendants claim that they saved another client from having to pay the IRS a large tax debt. Though this client did settle his tax debt with the IRS, defendants inflated this client's savings by approximately $45,000.”

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