JK Harris & Company has been ordered to pay $800,000 in refunds to its Texas clients after the Texas Attorney General won a lawsuit against the tax debt representation firm.

In April 2009, the state charged the South Carolina-based firm with materially misrepresenting its ability to help Texans resolve their unpaid federal income tax obligations. Under the agreed $1.2 million final judgment and permanent injunction, the defendants must pay $800,000 in refunds to their Texas customers, the court ordered on Wednesday. The court-approved agreement also imposed significant injunctive relief and ordered the defendants to reimburse the state for investigative and court costs and attorneys’ fees.

The court-ordered judgment also applies to two related companies, JKH Financial Recovery Systems LLC and Professional Fee Financing Associates.

The firm, which calls itself “the nation’s largest tax representation firm,” has been in trouble in other states in the past. In June 2008, the firm agreed to pay $1.5 million in restitution to former clients and change its advertising as part of an agreement with attorneys general in 18 states (see Tax Debt Firm to Pay $1.5M in Restitution). The firm was sued later that year by another attorney general, in Missouri (see Missouri AG Sues Tax Resolution Firm).

“Under the court order, JK Harris and its related companies must reform the way it does business—and provide restitution to Texas taxpayers who were harmed by the defendants’ unlawful conduct,” Texas Attorney General Greg Abbott said in a statement. “Taxpayers from across the state complained to the Attorney General’s Office about the defendants’ misconduct. The agreement seeks to resolve past problems, reimburse Texans who paid for services that were not actually rendered, and prevent additional misconduct in the future.”

In addition to the agreement’s financial penalties, the court ordered the company to reform several of its business practices and to improve disclosures to their clients. For example, JK Harris must clearly disclose, in writing, the fact that very few taxpayers qualify for the Internal Revenue Service’s Offer in Compromise program. JK Harris must also acknowledge that a taxpayer’s future earning potential and equity holdings factor into taxpayers’ eligibility for the OIC program—and thus decrease the likelihood that certain taxpayers will qualify for OIC treatment. JK Harris must also provide its clients written notice that the IRS is likely to continue collection efforts—including liens, levies and garnishment procedures—unless and until an OIC is approved.

The judgment stems from the state’s April 2009 legal action against JK Harris for misrepresenting its ability to help delinquent taxpayers resolve their unpaid obligations to the IRS. According to the state’s enforcement action, JK Harris failed to provide promised services, overstated its ability to reduce taxpayers’ debts to the IRS, and accepted large, prepaid fees from customers whose tax liabilities the firm knew—or should have known—it could not actually reduce.

Former clients of JK Harris & Company, JKH Financial Recovery Systems, LLC, or Professional Fee Financing Associates who believe they were misled by the defendants’ conduct can contact the Attorney General’s Office at (800) 252-8011.

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