The Tax Division of the U.S. Department of Justice announced today that it has filed suits in federal courts in four states againt five corporations that operate tax preparation franchises for Jackson Hewitt, 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.

Stock in Jackson Hewitt plunged 14% today on the news.  (The stock of H&R Block, the country’s #1 tax preparation firm, closed marginally higher.)

Documents:

• Atlanta Complaint
• Chicago Complaint
• Detroit Complaint
• Raleigh-Durham Complaint

Press Coverage:

• Bloomberg
• Reuters
• Wall Street Journal