Tax Prep Chain Cited For $70M In Fraud

The government said Tuesday it is trying to shut down more than 125 Jackson Hewitt tax preparation stores in four states for systematic "tax-fraud schemes."

The Justice Department accuses the franchises of bilking the government out of more than $70 million through fraudulent practices such as using phony W-2 forms, bogus deductions and fuel tax credits and false claims regarding the earned income tax credit.

Jackson Hewitt Tax Services Inc., with more than 6,500 franchises, is the nation's second-largest tax preparer after H&R Block Inc. The franchises were either totally or partially owned by Farrukh Sohail, the Justice Department said, and involved "a pervasive and massive series of tax-fraud schemes," according to court filings.

Ron Brunson, Sohail's Birmingham, Ala.-based attorney, said his client would not voluntarily stop preparing tax returns at the Jackson Hewitt franchises but was "hoping to work things out" with the Justice Department and IRS.

Sohail and other defendants "created, directed, fostered, and maintained a business environment" at the Jackson Hewitt franchises "in which fraudulent tax return preparation is encouraged and flourishes," according to court documents.

Employees allegedly were encouraged to ignore telltale signs of fraudulent information and to file claims even when it was obvious customers were using fake W-2 forms or false deductions.

A sample of returns prepared by franchises connected to Sohail found 31 percent contained false information such as phony earned income tax credit claims, bogus deductions and fraudulent W-2 forms, the government said.

The suits, filed in federal courts in Chicago, Atlanta, Detroit and Raleigh, N.C., also allege that managers and employees at the Jackson Hewitt franchises took kickbacks for filing fraudulent returns.

Managers at the franchises repeatedly told tax preparers that "we are not the IRS" and that it is not their responsibility to prevent customers from filing bogus returns, the court documents said.

Many of the stores catered to customers seeking refund anticipation loans based on phony returns.

In one instance, a Jackson Hewitt franchise customer allegedly claimed a fuel tax credit so absurd that the tax filer would have had to drive almost 1,400 miles a day.

The suits seek court orders shutting down the franchises.

"I am deeply disturbed by the allegation that a major franchisee of the nations second-largest tax preparation firm is intentionally preparing improper tax returns with inflated refunds," said IRS Commissioner Mark W. Everson.

Shares of Jackson Hewitt dropped $5.87, or 18.1 percent, on Tuesday to $26.53 after earlier hitting a new 52-week low of $26.26 on the New York Stock Exchange. Before Tuesday, the shares had traded between $27.90 and $37.44 in the past year.

A representative from Parsippany, N.J.-based Jackson Hewitt did not immediately return a call for comment.

[dav0819]

I hope CBS investgates farther on this matter. Maybe perhaps ask HSBC Bank why there not going to do any more Pre-stub loans. I'll bet you will fined out that the bank caught Jackson Hewitt misleading them also. Jackson Hewitt needs to be investigated and there owners more intensed. There our many Tax Preparers who do the right thing and don't have to mislead to make a living. I personally would never consider going to work for Jackson Hewitt and I'am a proud Tax Preparer

[snowbrd7]

It is astounding how many people cheat on their taxes. I really wish the IRS would crack down on obvious cheaters. We ALL pay taxes and those who cheat are cheating all of us.

[dallasmsl]

Hhusted,
You are correct. If the tax preparer knowingly does something wrong (fraud) then the tax preparer is to blame. Believe me, I was not standing up for corrupt actions of wayward tax preparers. It appears that the commissions of some of Jackson Hewitt tax preparers is tied to the size of the refund so it incites illegal activities in the preparation of the return.

At H&R Block, tax preparers got a flat fee and only charged extra when customers brought in the shoe-box of receipts for us to add up (hence, some customers already itemized their receipts saving us time and them cost). So long as the tax payer has the receipts and can prove them to the IRS and signed his return accordingly, I was okay with that. That's all I was getting at. It appears that JH went beyond this and padded tax returns where ever possible.

Hope I cleared that up. And thanks for your post.

[hhusted]

dallasmsl,

I am a former tax preparer, and when someone came to me to have their taxes done, I refused to do them until I saw all receipts. I do not want to fill out any form unless I know it is warranted. I did a tax return for a customer last year. Soon after the IRS contacted me claiming one W-2 was missing (they looked me up by my ssn). I contacted the filer and he told me he forgot to bring it. Thanks to his mistake, i got contacted about it. So I had to quickly do an ammended return so the both of us could avoid late fees and penalties.

If the tax preparer knowingly does something wrong, the tax prepaper is the one to take the blame, not the tax payer. When the tax payer comes to get his taxes done by an authorized agent, he puts his trust in the tax preparer, which should be the case.

H&R Block has a terms of agreement statement that clearly says that if a tax payer were to get audited or contacted over his tax return for any reason, H&R Block would intervene in the tax payer's behalf. This is the way it should be.

[cpaide]

Yes, part of the blame is an overly-complex tax system, part is taxpayer ignorance; however, most of the blame rests squarely on the McTaxPrep shops which are staffed by part-timers, some of whom have little or no sense of professional ethics or obligation to the customers they serve.

Note also how the accused and his attorney responsed in this situation: typical denial and "let's make a deal" approach rather than a solution based on sound analysis of the tax law and good moral reasoning. The more accountants think and act like lawyers, the more we will see incidents like this one & Enron, etc.

The sad part is that many of these people probably could have gotten sizeable refunds or lowered their taxes substantially by hiring a competent professional to implement perfectly legal tax planning and tax preparation strategies. To find one of these rare individuals, I suggest the following:

http://www.cpawho.com
CPAWho Accounting and Tax Pro Finder

Or, get some help online so you can understand and follow the law yourself:

http://www.statetaxcentral.com
State Tax Central

http://www.fedtaxcentral.com
Federal Tax Central

Hey, remember to claim the Telephone Excise Tax Refund (TETR) on your return. Also, taxpayers with an Adjusted Gross Income (AGI) of $52,000 or less for 2006 can e-file their federal tax returns this year for free. Now those are just two small ideas that can save the little guy a few bucks at the expense of the IRS and the McTaxPrep shops.

[bogusbones]

All our tax code has done is fostered generations of cheaters. Put money on the table and most people would run over their grandmother for it. Institute a graduated flat tax. Less than $40k no taxes. The rate escalates according to income. This is hardly shocking considering the way our tax code is set up.

[dallasmsl]

I used to work for H&R Block and the things that Jackson Hewitt is being accused of seem rediculous to me.

Suppose you are sitting there when someone comes in and provides a piece of paper that lists all of his deductions. Do you, as a tax preparer need to see all of his receipts? No! The tax payer is the one who needs to have those receipts for his/her audit. Are you going to refuse to do the tax return because they left their file cabinet full of receipts at home? Heck no!

The IRS seems to be going after Jackson Hewitt when they should be going after the people who sign the returns. I cannot believe that any taxpayer would knowingly sign a tax return that was untrue UNLESS they wanted it to be so. The fault lies with the Tax Payer.

[bobfishinguy]

Yeah, don't teach history, math or science, and the financial management section will be quick also. How long doed the short form for a part time french fry slinger take?

I guess the clue is that out of 3000+ years of history, you find "the civil war, slavery" to be the problem. Is it hard to do algebra with the sheet over your head?

I actually agree that financial management is an important topic in education, but what kind of moron thinks that's all that should be taught?

If your kid is not being taught basic financial management (God, I hope you did not breed, but if you did), get off your lazy *** and teach them yourself. Who ever said that it was the school's responsibility to teach EVERYTHING? (Yes, I can use the caps lock)

As far as the article, a bunch of stupid, greedy people, too dumb to run turbo tax, and too stupid to understand that an electronicly filed return comes back to your bank account in 10 days now, paying interest on "instant refund" loans that would make Tony Soprano blush.

This whole, corrupt industry goes away tomorrow with a flat tax or a national sales tax.

[griking]

One of the first things they should teach our children in school is how to use the Caps Lock and shift keys.

[ndg1979]

This just shows one of the biggest defects in our educational system in America - WHEN IT COMES TO EDUCATING CHILDREN ON THE 3 R'S, WE FORGET THAT TEACHING RESPONSIBLE FINANCIAL MANAGMENT SHOULD BE NO. 1!!

When children graudate high school in today's society, they should be able to balance a checkbook and prepare a basic tax return. Unfortunately, H&R Block, Jackson-Hewitt and others are profiting so much from our stupidity.
I know tax time can be confusing, but only because you were never educated on taxes, just the civil war, slavery, 3x+5=0 and how to disect a frog. Today's school systems - WHAT A CROCK!!

CONGRATS AMERICA FOR BEING ONE OF THE DUMBEST COUNTRIES ON EARTH!! And for those of you who CAN do your taxes - consider yourself a saint.