Jackson Hewitt says federal probe widens 

[June 06, 2007]  TRENTON, N.J. (AP) -- The federal government has widened its probe into whether the nation's No. 2 tax return preparer helped customers file fraudulent returns to get bigger refunds.

One large franchisee of Jackson Hewitt Tax Services Inc. was accused of fraud two months ago, and the company hired a former Internal Revenue Service commissioner to review the allegations.

In a regulatory filing with the Securities and Exchange Commission late last week, Jackson Hewitt disclosed that the corporation itself and all of its franchisee and company-owned stores now are being investigated by the IRS. The Parsippany-based company has 5,778 franchisee-operated offices and owns another 723 offices nationwide, for a total of 6,501.

IRS spokesman Bruce Friedland said he could not confirm any investigation and that federal law prohibits the IRS from disclosing information about individual or corporate taxpayers. A spokesman for the U.S. Justice Department also declined to comment.

Jackson Hewitt spokeswoman Sheila Cort said in a statement that the company is cooperating with the Justice Department and the IRS "in connection with this matter and other IRS audits and inquiries."

She said the company plans to complete the internal review quickly and make any necessary changes in time for the 2008 tax filing season.

The Justice Department on April 3 filed civil injunction lawsuits seeking to halt fraudulent practices at more than 125 Jackson Hewitt retail tax preparation stores in and around Chicago, Detroit, Atlanta and Raleigh-Durham, N.C.

The agency said one of the two dozen defendants named in the lawsuits, Farrukh Sohail of Atlanta, owned all or part of the five corporations running those franchises. The others are workers or managers at those offices, which filed more than 105,000 federal income tax returns in 2006.

The government alleged Sohail and the other defendants created an environment "in which fraudulent tax return preparation is encouraged and flourishes." The lawsuits accuse them of filing false returns that claim refunds based on phony W-2 forms, taking deductions for fabricated businesses and business expenses, "massive fraud" related to claiming the federal earned income tax credit, and other abuses.

A week later, Jackson Hewitt said Sohail had agreed to suspend all his franchise operations temporarily.

In a statement filed with the SEC Thursday, the company said it had recently learned the IRS "is conducting additional examinations of tax return preparation activities" involving the franchisee and company stores, as well as the corporation.

The filing was part of Jackson Hewitt's quarterly earnings report, which noted that its internal review costs had reduced net income by about $300,000, to $66 million, in the quarter ended April 30.

Shares of Jackson Hewitt fell 12 cents to $29.30 Tuesday.

On the Web:

• Jackson Hewitt Tax Services Inc.: http://www.jacksonhewitt.com

[Text from Associated Press file; article by Linda A. Johnson, AP business writer]