Government Sues Jackson Hewitt Franchises in 4 States

Alleging pervasive fraud, the government has filed civil injunction suits against five corporations that operate Jackson Hewitt tax prep franchises, as well as 24 individuals who manage or work at the franchises, the Justice Department and the Internal Revenue Service 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. Collectively, the suits allege that the businesses cost more than $70 million in losses to the U.S. Treasury.

One of the individual defendants, Farrukh Sohail of Atlanta, wholly, or partly, owns each of the five corporations. Those businesses operated more than 125 Jackson Hewitt retail tax preparation stores in the Chicago, Atlanta, Detroit and Raleigh-Durham, N.C., areas -- preparing and filing more than 105,000 federal income tax returns last year.

According to the government complaint, Sohail and other defendants “created and fostered a business environment” at the franchises, “in which fraudulent tax return preparation is encouraged and flourishes.” Examples of the 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,
  • Engaging in massive fraud related to claiming the federal earned income tax credit.

The lawsuits also accuse some of the Jackson Hewitt franchises’ managers and employees of receiving kickbacks from customers for helping the customers file fraudulent tax returns.“When practitioners prepare a false tax return, it has a corrosive impact on the tax system,” said IRS Commissioner Mark W. Everson, in a statement. “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 lawsuits are Smart Tax Inc. and Ask Tax Inc., both of Chicago; Smart Tax of Georgia Inc., of Atlanta; So Far Inc., of Detroit; and Smart Tax of North Carolina Inc., of Raleigh, N.C. All were doing business as Jackson Hewitt Tax Service.

Last December, the Justice Department sued a Miami tax preparer alleging similar fraudulent claims of the fuel tax credit, and in July 2006, a federal court enjoined a large Jackson Hewitt franchise in Miami from asserting frivolous positions on tax returns.

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