JUDGE DISMISSES RACKETEERING, FRAUD CLAIMS AGAINST JACKSON HEWITTChicago — A federal judge has dismissed major parts of a class-action lawsuit brought against tax prep chain Jackson Hewitt and a large group of its franchisees.
U.S. District Court Judge Ruben Castillo threw out civil racketeering and fraud claims against Jackson Hewitt, former franchisee Farrukh Sohail, a group of unnamed Jackson Hewitt franchisees, and Sohail’s Smart Tax and Ask Tax businesses, which also operated Jackson Hewitt franchises.
Sohail had owned or co-owned about 160 Jackson Hewitt franchises before the Justice Department and the Internal Revenue Service sued him and Jackson Hewitt for tax fraud. Sohail signed a consent agreement enjoining him from preparing federal tax returns and sold the franchises back to Jackson Hewitt for $19 million.
Brent Wooley, a Chicago postal worker, brought the lawsuit, claiming that Jackson Hewitt included improper charitable and other deductions on his 2002 tax return that he never authorized. The IRS disallowed the deductions and charged Wooley taxes, penalties and interest. He asked Jackson Hewitt to reimburse him for the charges under the firm’s “Gold Guarantee,” but Jackson Hewitt denied the claim, saying that he was unable to produce sufficient or appropriate records to support his tax position. Wooley claimed that the same tax preparer made similar mistakes for two other Chicago postal workers.
Castillo ruled that Wooley had failed to demonstrate a valid racketeering claim, as he did not describe the organization and hierarchy of the enterprise, the manner of decision-making and the differentiation of roles. The judge also threw out the fraud claim, saying that it seemed more like a breach of contract. However, he did leave open a window for amending and repleading the complaint.
KPMG AND XEROX SETTLE SECURITIES LAWSUIT
Norwalk, Conn. — Xerox and KPMG agreed to settle a shareholder lawsuit dating back to 2000 claiming that Xerox manipulated its accounting to inflate its earnings.
Under the proposed agreement, Xerox will make cash payments totaling $670 million, while KPMG, Xerox’s former outside auditor and a co-defendant, will pay $80 million into the settlement fund. Xerox expects to make its payments in five installments this year. Xerox also said that it settled the case to avoid the time, expense and uncertainty of litigation without admitting any wrongdoing.
Xerox will take an after-tax charge of $491 million in the first quarter of 2008 to cover the settlement and provide reserves for other pending securities-related cases.
In 2002, the Securities and Exchange Commission charged Xerox and several senior Xerox executives with improperly accounting for the leasing of copiers and other office equipment, booking the lease revenue upfront rather than over the years of the lease.
CLIFTON GUNDERSON BUYS UHY FED PRACTICE
Baltimore — Accounting firm Clifton Gunderson has acquired the Arlington, Va., federal government practice of UHY LLP. The deal became effective April 1. Financial terms were not disclosed.
UHY partner Roger Von Elm will join Clifton Gunderson as a partner, while all of the other federal government practice professionals at UHY’s Arlington office will also join the firm. Most will remain at their current offices, but some will move to Clifton Gunderson’s office in Calverton, Md.
Clifton Gunderson, headquartered in Peoria, Ill., now operates in 17 states and the District of Columbia. The firm was ranked No. 14 on Accounting Today’s 2008 list of the Top 100 Firms with $228 million in revenue.
