Jackson Hewitt Franchises Accused of Helping Customers Commit Tax Fraud

Tuesday , April 03, 2007

NEW YORK —

Federal investigators have filed suit against five companies that operate Jackson Hewitt Tax Services Inc. (JTX) franchises, alleging that the firms contributed to tax fraud that bilked the U.S. Treasury out of more than $70 million.

Jackson Hewitt is the nation's second-largest tax preparer.

The Department of Justice said the companies allegedly operate more than 125 Jackson Hewitt retail tax preparation stores in the Atlanta, Chicago, Detroit and Raleigh-Durham, North Carolina, areas. The lawsuits also target 24 people who manage or work at the franchises, the department said.

"Preparing federal income tax returns based on falsehoods and fabrications is a serious violation of the law," Assistant Attorney General Eileen O'Connor said in a statement.

The suits allege that the companies and individuals contributed to the filing of false returns by using false deductions and credits, fabricated tax documents and other illegal means.

One example cited by the government was the case of a barber whose Jackson Hewitt-prepared tax return claimed entitlement to a fuel tax credit for 25,000 gallons of gasoline. The complaint alleges that in order to consume that much fuel, the customer would have had to drive over 1,000 miles every day, seven days a week for a year.

The suit also accuses the defendants of creating an environment at the Jackson Hewitt franchises "in which fraudulent tax return preparation is encouraged and flourishes," and alleges that some employees recieved kickbacks for preparing the false returns.

Parsippany, New Jersey-based Jackson Hewitt is the second-largest U.S. tax preparer. It did not immediately return a call seeking comment. The company's shares fell $2.12, or 6.5 percent, to $30.28 in afternoon trading.