Liberty Tax parent settles with Justice Department, IRS

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Franchise Group Inc., the parent company of Liberty Tax Service, has settled with the Department of Justice and the Internal Revenue Service regarding an investigation into the company’s compliance program.

The DOJ had filed for Franchise Group to “refrain from specific acts, enact enhanced internal compliance controls regarding the detection of false tax returns, and pay for an independent monitor to oversee Liberty’s compliance.”

Liberty has agreed to the conditions. Under the order, Franchise Group agreed that it would not rehire or engage the company’s former chairman, John T. Hewitt, “under whose watch the conduct at issue occurred,” according to a statement from the company. Franchise Group will also pay the IRS $3 million, the statement added, stressing that the problems were “issues of the past.”

The DOJ complaint alleged that Liberty failed to maintain adequate controls over returns prepared by franchisees and failed to prevent the filing of potentially false or fraudulent returns prepared by franchisees, despite notice of fraud at some of its franchisee stores.

Between 2013 and 2018, the Department of Justice filed 10 actions against Liberty franchisees, some of whom Liberty designated as “Elite 18” franchisees because their “performance and attitude set the standard for the [Liberty Tax Service] organization,” according to the DOJ.

The government contended that “common patterns” across top franchisees included concocting income for customers to claim the Earned Income Tax Credit, fabricating expenses to reduce income tax liability, claiming improper or false dependents, and falsifying education expenses.

Liberty filed some 1.6 million returns annually between 2015 and 2019, and for tax years 2012 to 2018 claimed more than $28 billion in federal refunds, the complaint asserted.

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Tax franchises Liberty Tax Service IRS DoJ Tax returns