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US Government Accuses Jackson Hewitt Franchisees Of Tax Fraud

by Leroy Baker,, New York

05 April 2007

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 Internal Revenue Service (IRS) have announced.

According to the four lawsuits — filed in federal courts in Chicago, Atlanta, Detroit and Raleigh, N.C. — the corporations operate under franchise agreements with Jackson Hewitt Tax Services Inc. of Parsippany, N.J., the nation’s second largest tax preparation firm.

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.

One complaint cites a Jackson Hewitt franchise customer whose Jackson Hewitt-prepared tax return claimed he was a barber who was entitled to a fuel tax credit for buying 25,000 gallons of gasoline for off-highway business use. The complaint alleges the customer would have had to drive 1,370 miles each day, seven days a week, to consume that much fuel in one year, leaving little if any time to cut hair. Last December, the Justice Department sued a Miami tax preparer alleging similar fraudulent claims of the fuel tax credit. In July 2006, a federal court in Miami enjoined a large Jackson Hewitt franchise from asserting frivolous positions on tax returns.

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.

"Preparing federal income tax returns based on falsehoods and fabrications is a serious violation of the law," said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “The Justice Department and Internal Revenue Service are working vigorously to put a stop to these activities.”

“When practitioners prepare a false tax return, it has a corrosive impact on the tax system,” added IRS Commissioner Mark W. Everson. “I am deeply disturbed by the allegation that a major franchisee of the nation’s second-largest tax preparation firm is intentionally preparing improper tax returns with inflated refunds. I’m particularly concerned that many taxpayers of modest means could actually end up owing the government thousands of dollars if they claimed an improper refund.”

The five Jackson Hewitt franchises named in the four suits are:

Chicago: Smart Tax, Inc., d/b/a Jackson Hewitt Tax Service; Ask Tax, Inc., d/b/a Jackson Hewitt Tax Service;

Atlanta: Smart Tax of Georgia, Inc., d/b/a Jackson Hewitt Tax Service;

Detroit: So Far, Inc., d/b/a Jackson Hewitt Tax Service; and

Raleigh: Smart Tax of North Carolina, Inc., d/b/a Jackson Hewitt Tax Service

Since 2001, the Justice Department’s Tax Division has obtained more than 230 injunctions to stop the promotion of tax fraud schemes and the preparation of fraudulent returns.

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