The Department of Justice announced this week that it hopes to shut down more than 125 Jackson Hewitt Tax Services, Inc. franchises in Illinois, Michigan, Georgia and North Carolina for what it deemed “a pervasive and massive series of tax-fraud schemes.” Jackson Hewitt is the nation’s second largest tax preparation firm; H&R Block is the nation’s largest.
The franchises, owned by Farrukh Sohail, are accused of promoting fraudulent practices such as using phony W-2 forms and bogus deductions. In addition, the franchises are said to have advised taxpayers to claim inappropriate fuel tax credits and false earned income tax credits. In one instance, a taxpayer whose return was prepared by Jackson Hewitt claimed a fuel tax credit for buying 25,000 (yes that’s thousand) gallons of gasoline for business use – as a barber. According to the DOJ, the taxpayer would have had to drive 1,370 miles each day, seven days a week, to consume that much fuel in one year, leaving little if any time to cut hair.
Franchise owner Sohail and 23 other defendants are said to have “created, directed, fostered, and maintained a business environment” at the Jackson Hewitt franchises “in which fraudulent tax return preparation is encouraged and flourishes.” DOJ officials allege that employees at the franchises were encouraged to ignore obvious signs of fraud, including the apparent use of fake W-2 forms or claiming excess or false deductions. The suits also allege that managers and employees at the Jackson Hewitt franchises took kickbacks for filing fraudulent returns.
The DOJ has sued to close the tax preparation firm locations in questions. However, Ron Brunson, Sohail’s 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.
In response, the parent company of Jackson Hewitt announced that it has launched an internal review of the allegations, led by former IRS Commissioner Fred Goldberg, now a partner at the law firm Skadden, Arps, Slate, Meagher & Flom LLP. Michael Lister, president and CEO of Jackson Hewitt had this to say:
We have launched this internal review to investigate the specific allegations against one of our franchisees. We intend to identify all of the facts related to these allegations and address them appropriately. The review will also examine practices and procedures and make any recommendations that may be needed to ensure that customers continue to have the utmost confidence in all of our franchises.
The investigation marks the third time in the last year that Jackson Hewitt offices have been the targeted by federal officials, including allegations last year that a Florida-based franchise owner encouraged preparers to advise taxpayers to claim a frivolous federal income tax exemption for casino gaming proceeds paid to Native Americans.
Shares of Jackson Hewitt stock tumbled on the news. Somewhere, franchise owners at H&R Block are probably smiling.
I worked for Jackson Hewitt here in Oregon, and I must say that I knew that their business practices were very unorthodox, but this is unbelievable. I worked in the customer care center here in Salem, and I was fired because I supposedly wasn’t making enough sales calls. Everyday, we received calls from people complaining that the IRS took their returns because the preparers had fraudulently filed their W-2s.
A lot of the calls came from Idaho and southern California.