IRS Widens Jackson Hewitt Tax Fraud Probe

by Leroy Baker, Tax-News.com, New York

06 June 2007

Jackson Hewitt, America's second-largest tax preparation company, has confirmed that it is under investigation by the Internal Revenue Services concerning alleged cases of tax fraud by some of its franchisees.

In a Securities and Exchange Commission filing last week, Jackson Hewitt revealed that it has recently learned that the IRS is conducting additional examinations of the tax return preparation activities of Jackson Hewitt franchisees and company owned stores, and that the company itself is also a subject of an IRS examination relating to these matters.

On April 3, 2007, the Department of Justice announced it had filed civil injunction suits against a franchisee and other named defendants operating in four states, based on allegations involving fraudulent tax return preparation. According to the government complaint, Farrukh Sohail of Atlanta and other defendants “created and fostered a business environment” at the Jackson Hewitt franchises “in which fraudulent tax return preparation is encouraged and flourishes”.

Sohail is said to wholly or partly own each of the five corporations under investigation. These corporations allegedly operate more than 125 Jackson Hewitt retail tax preparation stores in the Chicago, Atlanta, Detroit and Raleigh-Durham, N.C. areas, and prepared and filed over 105,000 federal income tax returns last year.

Examples of fraud alleged in the lawsuits include filing false returns claiming refunds based on phony W-2 forms; using fabricated businesses and business expenses on returns to claim bogus deductions; claiming fuel tax credits in absurd amounts for customers clearly not entitled to any credits; and massive fraud related to claiming the federal earned income tax credit.

The suits further allege that some of the Jackson Hewitt franchise managers and employees received kickbacks from customers for helping the customers file fraudulent tax returns.

Jackson Hewitt has said that it is cooperating fully with the investigation, and has opened its own internal review to investigate the allegations and examine the company's practices and procedures.

"The company is cooperating fully with the IRS," the filing said, adding that: "The company intends to complete the internal review promptly and to implement a variety of enhancements in the areas of compliance and monitoring for the 2008 filing season."

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