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Jackson Hewitt To Probe Franchisee Tax Fraud Allegations

by Leroy Baker,, New York

09 April 2007

Jackson Hewitt Tax Service Inc., the second-largest tax preparation company in the US, has announced it has launched an internal review of allegations that a franchisee prepared fraudulent tax returns.

The review is being led by Fred Goldberg, a partner at the law firm Skadden, Arps, Slate, Meagher & Flom LLP, who served as Internal Revenue Service Commissioner between 1989 and 1992. He was also Assistant Secretary of the Treasury for Tax Policy in 1992.

"Jackson Hewitt takes allegations against our franchisees seriously," said Michael Lister, President, and CEO of Jackson Hewitt Tax Service Inc. "We have launched this internal review to investigate the specific allegations against one of our franchisees. We intend to identify all of the facts related to these allegations and address them appropriately. The review will also examine practices and procedures and make any recommendations that may be needed to ensure that customers continue to have the utmost confidence in all of our franchises."

The United States has filed civil injunction suits against five corporations that operate Jackson Hewitt tax preparation franchises, as well as 24 individuals who manage or work at the franchises, the Justice Department and the IRS announced recently.

The suits allege that one of the individual defendants, Farrukh Sohail of Atlanta, Ga., wholly or partly owns each of the five corporations, which prepared and filed over 105,000 federal income tax returns last year. The five corporations allegedly operate more than 125 Jackson Hewitt retail tax preparation stores in the Chicago, Atlanta, Detroit and Raleigh-Durham, N.C. areas.

According to the government complaint, Sohail and other defendants “created and fostered a business environment” at the Jackson Hewitt franchises “in which fraudulent tax return preparation is encouraged and flourishes.” 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 franchises’ managers and employees received kickbacks from customers for helping the customers file fraudulent tax returns. The suits further allege more than $70 million in combined losses to the US Treasury, and seek court orders barring the franchises and other defendants from preparing tax returns for others.

Jackson Hewitt has over 6,500 franchised and company-owned offices throughout the United States. Most offices are independently owned and operated.

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