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, according to BNA's Daily Tax Report.

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.

The IRS disallowed their deductions too, and Jackson Hewitt failed to reimburse them for their penalties under the Gold Guarantee. Wooley claimed that numerous other taxpayers had been subjected to similar treatment.

However, Judge Castillo said 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 it seemed more like a breach of contract. However, he did leave open a window for amending and repleading the complaint.

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