Local News

IRS Claims Jackson Hewitt Franchise Filed Bogus Tax Returns

Posted April 3, 2007
Updated April 4, 2007

— The federal government on Tuesday filed a fraud suit against the company that operates the Jackson Hewitt tax preparation offices in the Triangle.

The Department of Justice and the Internal Revenue Service filed similar suits in Chicago, Atlanta and Detroit, naming the franchises in those cities and 24 managers and employees as defendants. Local franchise Smart Tax of North Carolina Inc. and regional managers Adeel Ali and Jim Wizner were among those named in the suit.

The fraud cost the government more than $70 million in tax losses, according to the suits, which seek court orders barring the franchises, including all 34 outlets in the Triangle, and other defendants from preparing tax returns for others.

“When practitioners prepare a false tax return, it has a corrosive impact on the tax system,” IRS Commissioner Mark W. Everson said in a statement. “I am deeply disturbed by the allegation that a major franchisee of the nation’s second-largest tax preparation firm is intentionally preparing improper tax returns with inflated refunds. I’m particularly concerned that many taxpayers of modest means could actually end up owing the government thousands of dollars if they claimed an improper refund.”

The IRS is auditing questionable returns connected only to the suits, officials said.

Local Jackson Hewitt managers referred all questions to the company's attorneys.

New Jersey-based Jackson Hewitt released a written statement Wednesday, saying the complaints involve only a fraction of the company's 6,500 outlets nationwide. The company said it expects its franchisees to conduct their operations with integrity.

One of the individual defendants, Farrukh Sohail of Atlanta, wholly or partly owns each of the five corporations, which prepared and filed over 105,000 federal income tax returns last year, according to the suits. The suits allege Sohail and other defendants “created and fostered a business environment” at the Jackson Hewitt franchises “in which fraudulent tax return preparation is encouraged and flourishes.”

Examples of fraud alleged in the lawsuits include filing false returns claiming refunds based on phony W-2 forms, using fabricated businesses and business expenses on returns to claim bogus deductions, claiming fuel tax credits in absurd amounts for customers clearly not entitled to any credits and massive fraud related to claiming the federal Earned Income Tax Credit.

Some of the Jackson Hewitt franchise managers and employees received kickbacks from customers for helping them file fraudulent tax returns, according to the suits.

The suits allege that the franchises hired poorly trained workers to complete tax returns for customers.

A local competitor described filing tax returns as meticulous work.

"I wouldn't take a lady off the street and sit her down to do a tax return," said Brian Harrell, who owns a Liberty Tax outlet.

Harrell said his staff undergoes 10 weeks of training every year before tax season, but that preparers cannot always catch fraudulent forms.

"There are things you look at," he said. "You look at a customer's return. If a person made a certain amount of money, yet their refund is way (out of line), there's a red flag."


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  • Tax Man Apr 6, 2007

    I have prepared taxes since 1978 - and I fully support the Fair Tax! Read the book - see the site: www.fairtax.org

    Would make the fraud much more difficult, if not impossible and would adjust the tax burden based upon your spending - spend more on big ticket items = pay more taxes. Just get by, pay no taxes. Really good idea. Now just have to convince Congress to do what is right!

  • hotnblonde75 Apr 5, 2007

    as someone who has done taxes for 14 years and worked for JH as well ( i now own my own business) First of all, the IRS recieves a statement from every employer regarding the wages that were paid etc,etc, this info may be after you, the employee, file your taxes for that year. Secondly - while you are correct in saying the majority of people who receive a refund are really only receiving thier own money back, some actually withold at the correct amount, but get EIC and the addt'l child tax credit. JH routinely hires people who have no experience in doing taxes and are trained to do the least amount of work but charge the most money. I worked for JH for 2 years but I was uneasy about the way the lower income clients pay $400. to get thier tax return done which takes 8 minutes. If your tax preparer can not do thier own taxes (on paper not with software), they should not do yours!! taxact.com is free or go to the irs.gov website and you can find a free service to do your own.

  • GWALLY Apr 4, 2007

    FAIR TAX all the way!!!!!!!!!!!!!!!Support it.....this would never happen under the fair tax system!!!!

  • Censor victim Apr 4, 2007

    Support the Fair Tax. Then Apr 15 will be just another day. Fairtax.org to learn more.

  • xxxxxxxxxxxxx Apr 4, 2007

    I agree with NotYourAverageJoe - if they don't have time to check most of the returns before they send the refund and they can't come back to you later, everybody could file a bogus return assuming the odds of getting caught are pretty slim.

    MsLisa363C - unless you had some unusual circumstances last year, I hope you plan to change your withholdings. You do realize that the $3000 refund was YOUR money that you allowed the government to play with for a year don't you? It wasn't a nice gift from Uncle Sam.

  • Pandoras Box Apr 4, 2007

    NotYourAverageJoe - I dont' cheat on my taxes if that's what you mean. No, it would save alot of trouble. Actually most audits are random and not because of errors. Bet you didn't know that. It is just by chance or the luck of the draw. I keep my stuff well documented and do my own taxes. It just doesn't make sense that they can go back 3 years. But I have spoken with the IRS many times working for an attorney - no wonder.

  • Weetie Apr 4, 2007

    I worked for Jackson Hewitt in 1994 (thru 2000)and I have never seen or heard of this being done...however, that doesn't mean that it wasn't.

    I began my own business in 2002 and now I feel good knowing that I did! I know for sure that I am honest...nowadays, hard to tell about others. I have always feared two things in my life... first of all God. Second would be the IRS.

  • FiveOclocksomewhere Apr 4, 2007

    Turbo-Tax...easy and step by step!! Did my own this year!

  • mslisac363 Apr 4, 2007

    Did my own taxes! The more money this type of service gets for you the more money they make. I got almost 3thousand back and only cost me 45 dollars. These services are a waste of time, unless you are a person with a very low income and the gov. is going to give more money back then you earned all year with the earned income.

  • baracus Apr 4, 2007

    If they carefully checked every return before sending out refunds, then a lot of people probably wouldn't be seeing their refunds until the next year. I assume the majority of people who do their taxes correctly wouldn't be too happy about that.

    That said I am a little ticked that I just got a letter from the NC Dept of Rev that they may not have received my 2004 return. Well, they sure as heck had no problem cashing my check for the taxes I owed that year!