Local News

IRS Claims Jackson Hewitt Franchise Filed Bogus Tax Returns

Posted April 3, 2007 3:27 p.m. EDT
Updated April 4, 2007 6:15 p.m. EDT

— 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."