John K. Harris founded JK Harris & Co. in 1997 and it quickly grew into one of the country's largest tax representation firms, helping people who are in trouble with the Internal Revenue Service.

The firm, based in Charleston, S.C., operates 425 locations in 45 states. The firm claims to hire ex-IRS agents, CPAs, lawyers, enrolled agents, and tax, financial and small business professionals to represent taxpayers before the IRS and resolve their tax problems.

However, the firm has faced a multi-state investigation by a group of 18 attorneys general over that claim, as well as a class-action lawsuit, claiming that the firm did not assist its clients as advertised with arranging offers-in-compromise with the IRS even after they made up-front payments, and that the advertised experts were not available at the local offices. The firm recently agreed to pay $1.5 million in restitution to former clients and change its advertising to settle the multi-state complaint (see Tax Debt Firm to Pay $1.5M in Restitution). Last year, it settled the class-action suit for $6 million.

Harris told WebCPA that his firm has changed all of its advertising and contracts to make sure his clients understand the services his firm is providing, which are generally handled by the central office.
He received his undergraduate degree in 1976 and Masters in Accounting and Tax from the University of South Carolina in 1977. Prior to founding his firm, Harris spent 20 years in both industry and private practice as a CPA. Harris retired his CPA certificate in 1999 and has concentrated his time on building JK Harris & Co.

Q: What are the most common tax problems that your firm handles for clients?

A: Primarily it involves individuals. We're probably 80 or 85 percent consumer wage earners and 10 to 15 percent self-employed small-business owners. The typical problem is non-filers. The average client has between three and four years of unfiled tax returns. Our first step is to get them back in compliance. We've got to get them prepared for those years. We've got to obtain the W-2 and 1099 information from the IRS, which we can now get from the Internet. Once we gather that information and prepare their tax returns, then we know their total liability. Our consultants and employees are trained well enough that if the consumer brings the latest correspondence from the IRS, we can determine in about five minutes what years they haven't filed. The first step is to get their levy or lien or wage garnishment released, and then we have to get them to file and get them back in compliance. About a third of the ones coming to us have the government ready to take their paychecks or put a hold on their checking or savings account. The letters start piling in. I've had clients walk in with five years of unopened letters in a shoebox and say, "I've been afraid to open them." The first step is to get them out of their emergency situation, get them on a QuickPay route or installment route, or Status 53, temporarily uncollectible, so the government doesn't levy them and take their paychecks. It's a vast array of services we offer. Some of them have lost a bookkeeper and we have a bookkeeping service that maintains the books for 3,000 or 4,000 customers, and we do the books for them.

Q: Has IRS enforcement gotten tougher in the past year?

A: It's gotten tougher in the last three years really, ever since [former IRS Commissioner Mark] Everson took over. He's gone now, but when Iverson came in there was an immediate reversal. [Charles] Rossotti was a great commissioner. He did more than any other commissioner in history. Everson stepped in and they stated reversing a lot that Rossotti did. They've gotten a heck of a lot tougher. In 1996 or 1997, they hit 4.2 million levies, and then it fell. Last year there were close to 4 million levies. Is enforcement up? Oh my gosh, yes, it is up to its peak before the [IRS Restructuring and Reform] Act was passed. The IRS calls it enforced election activity. The '98 reform act was so drastic that the IRS and Rossotti had no choice. It almost virtually shut down the IRS collection machinery. The IRS collection effort dropped from 4 million to less than 200,000 in that period. They were reworking the systems to comply with the IRS Reform Act. They are back at their peak. I think they will break their all-time record this year and will probably reach 4.5 to 4.6 million.

Q: Who are the typical clients you see most often?

A: When we hired a market research firm to do a market study of our clients, a nationally recognized firm, Equifax, they came back and gave us a breakdown and told us our clients had a median income of $46,000. It was amazing. It was pure middle America, not upper income.

Q: What happened with the legal settlement that your firm recently signed with the attorneys general?

A: Actually there were two settlements: the multi-state with the attorneys general, and a settlement with a group of class-action firms. Ever since the tobacco lawsuits, as soon as any AG starts investigating there are three or four class-action lawsuits that get filed. They jumped on the back of the AGs. The class-action settlement was announced about a year ago. We concluded negotiations about three or four years ago, but it took three years to get all the legal documents done with the AGs. It happens in every single industry. Once they grow and become any size, then regulators start looking at the industry. It was an entire industry problem, and we have been the leaders for the last three or four years. We immediately changed all our advertising and all our contracts. We don't leave anything to the imagination of the consumer. We require our salespeople to disclose verbally. They read off the written contract so nobody walks out of the office with an incorrect perception. Are we successful with every case? No, but we are successful with the vast majority of cases.

Q: Is it true that you don't have the veteran ex-IRS agents, CPAs, lawyers, enrolled agents, etc., working in your offices?

A: The multi-state AGs were under the impression that the individuals in our sales offices were either telling or leading the consumer to believe that the work was being done in that local office. It's not. It's done in a centralized operation here in Charleston. It would be impossible to do that in 425 local offices. We always disclose that and call them from the Charleston office. Consumers started filing complaints in the industry, and the first thing they did was go after the major player. It's just a part of being the largest in an industry. No question we had some faults. I agree that we did and we corrected all that and we are trying to lead the industry in the direction of full disclosure, honesty and integrity in the business.

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