Maryland Comptroller Peter Franchot said Tuesday he has suspended processing of electronic and paper tax returns from 16 Liberty Tax Service franchise locations due to a high volume of questionable returns received, on top of seven Baltimore-area Liberty locations that he suspended processing last week.
Some of the suspicious characteristics detected on the tax returns included business income reported when taxpayers did not own a business, refund amounts requested much higher than previous year tax returns, inflated and/or undocumented business expenses, dependents claimed when taxpayer did not provide required 50 percent support or care, and inflated wages and withholding information.
The U.S. Attorney for the Eastern District of Michigan also issued a complaint last week seeking an injunction against another Liberty Tax Service franchisee in Detroit, Craig M. Comer, who manages five Liberty stores, claiming he filed hundreds, if not thousands, of fraudulent income tax returns.
Liberty told Accounting Today it is cooperating with the Maryland investigation, and that the franchisee in Detroit is no longer part associated with the company.
"Liberty Tax has a robust compliance program, and we expect our franchisees to make sure that their offices comply with all federal and state tax requirements," said Jim Wheaton, general counsel, chief compliance officer and vice president of legal and governmental affairs at Liberty Tax. "Since we learned of Maryland's concerns late last week, we have provided all requested information to the state, and have devoted significant efforts to looking at the offices identified last Thursday. We offered additional training to our franchisees' employees in Maryland earlier this week, and will do so again in the coming days. We will also address any concerns with the offices Maryland identified to us this afternoon. We have had a cooperative and productive relationship with the State of Maryland in the past, and expect to work with them to address their current concerns. In fact, we have offered to meet with them at their convenience, and look forward to the opportunity to work with the state to protect the public and meet the needs of each of our customers and the state."
Of the Detroit case, Wheaton said, "We’re looking at that concern, which relates to prior tax seasons, but the person who was the subject of that injunction lawsuit last week is actually no longer a franchisee. They disposed of their stores last year and they’re no longer on our system. So while we’re certainly looking at it and taking it seriously, that franchisee is not a franchisee in the Liberty system any longer."