Sen. Chuck Grassley, ranking member of the Committee on Finance, with jurisdiction over taxes, today made the following comments on the IRS’ enforcement action against Jackson Hewitt, described as the nation’s number two paid tax preparation firm.
"I can’t presume guilt on anyone’s part and don’t want to comment on the specifics of this case. But in general, it’s good to see the IRS and the Justice Department focusing enforcement on tax preparation. Almost a year ago to the date, a Finance Committee hearing highlighted problems with some paid preparers. We’re having a hearing next week to focus on filing season problems. Taxpayers need to be able to trust their paid preparers. In turn, the government needs accurate tax returns. We have a net tax gap of $290 billion. Any paid preparers cheating on taxpayers' behalf are part of the problem. Last year, the Finance Committee passed legislation to make paid preparers more accountable. That legislation wasn’t brought before the full Senate, but we need to try again."
The IRS-Justice Department press release follows.
FOR IMMEDIATE RELEASE TAX
TUESDAY, APRIL 3, 2007 (202) 514-2007
WWW.USDOJ.GOV TDD (202) 514-1888
U.S. GOVERNMENT SUES JACKSON HEWITT TAX PREPARATION FRANCHISES IN FOUR STATES, ALLEGING PERVASIVE FRAUD
Suits Allege More Than $70 Million in Losses to the U.S. Treasury; Seek to Bar Firms From Preparing Returns
WASHINGTON - The United States has filed civil injunction suits against five corporations that operate Jackson Hewitt tax preparation franchises, as well as 24 individuals who manage or work at the franchises, the Justice Department and the Internal Revenue Service (IRS) announced today. According to the four lawsuits—filed in federal courts in Chicago, Atlanta, Detroit and Raleigh, N.C.—the corporations operate under franchise agreements with Jackson Hewitt Tax Services Inc. of Parsippany, N.J., the nation’s second largest tax preparation firm.
The suits allege that one of the individual defendants, Farrukh Sohail of Atlanta, Ga., wholly or partly owns each of the five corporations, which prepared and filed over 105,000 federal income tax returns last year. The five corporations allegedly operate more than 125 Jackson Hewitt retail tax preparation stores in the Chicago, Atlanta, Detroit and Raleigh-Durham, N.C. areas.
According to the government complaint, 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.
One complaint cites a Jackson Hewitt franchise customer whose Jackson Hewitt-prepared tax return claimed he was a barber who was entitled to a fuel tax credit for buying 25,000 gallons of gasoline for off-highway business use. The complaint alleges the customer 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. Last December, the Justice Department sued a Miami tax preparer alleging similar fraudulent claims of the fuel tax credit. http://www.usdoj.gov/tax/txdv06860.htm. In July 2006, a federal court in Miami enjoined a large Jackson Hewitt franchise from asserting frivolous positions on tax returns. Details on that case are available at http://www.usdoj.gov/tax/txdv06429.htm.
The suits further allege that some of the Jackson Hewitt franchises’ managers and employees received kickbacks from customers for helping the customers file fraudulent tax returns. The suits further allege more than $70 million in combined losses to the U.S. Treasury, and seek court orders barring the franchises and other defendants from preparing tax returns for others.
"Preparing federal income tax returns based on falsehoods and fabrications is a serious violation of the law," said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. "The Justice Department and Internal Revenue Service are working vigorously to put a stop to these activities."
"When practitioners prepare a false tax return, it has a corrosive impact on the tax system," said IRS Commissioner Mark W. Everson. "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."
Fraudulent returns with false W-2 forms are first on the IRS’s list of the "Dirty Dozen" tax scams posted at http://www.irs.gov/newsroom/article/0,,id=154293,00.html.
The five Jackson Hewitt franchises named in the four suits are:
Chicago Suit: Smart Tax, Inc., d/b/a Jackson Hewitt Tax Service; Ask Tax, Inc., d/b/a Jackson Hewitt Tax Service;
Atlanta Suit: Smart Tax of Georgia, Inc., d/b/a Jackson Hewitt Tax Service;
Detroit Suit: So Far, Inc., d/b/a Jackson Hewitt Tax Service; and
Raleigh Suit: Smart Tax of North Carolina, Inc., d/b/a Jackson Hewitt Tax Service
Since 2001, the Justice Department’s Tax Division has obtained more than 230 injunctions to stop the promotion of tax fraud schemes and the preparation of fraudulent returns.
More information about the Justice Department’s efforts to stop tax scams can be found at http://www.usdoj.gov/tax/taxpress2007.htm. Information about the Justice Department’s Tax Division can be found at http://www.usdoj.gov/tax. For additional information on tax return preparer fraud, visit the Newsroom section of IRS.gov at http://www.irs.gov/newsroom/article/0,,id=167391,00.html.
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