A federal district court in Ohio has issued a permanent injunction ordering ITS Financial LLC, the parent company of Instant Tax Service tax franchiser, to cease operations ( ITS Financial LLC, No. 3:12-cv-95 (S.D. Ohio 11/6/13). The order, which was issued as a result of a two-week trial in June, also bars Fesum Ogbazion, the sole owner and CEO of ITS Financial, from operating or being involved with any business relating to tax-return preparation.
ITS Financial, which claims to be the fourth largest tax-preparation business in the country, had more than 150 franchisees that filed more than 100,000 tax returns each year in 2011 and 2012. Ogbazion also owned two other entities, Tax Tree LLC and TCA Financial LLC, that were also shut down.
The Justice Department cited a long list of the company’s transgressions, including:
- Filing tax returns for customers without their permission and encouraging franchisees to do the same;
- Training and encouraging franchisees to prepare and file tax returns prematurely with paycheck stubs that omitted and understated income, resulting in submitting false federal tax returns;
- Defrauding their largely low-income customers by marketing fraudulent loan products to lure them into their tax-preparation offices and by requiring franchisees to charge phony and exorbitant fees;
- Forging customers’ signatures on loan checks that were then used to fund Ogbazion’s businesses;
- Failing to pay more than $1 million of the businesses’ employment taxes, lying about assets, and hiding money in a secret bank account;
- Lying on government forms and encouraging franchisees to do so as well;
- Obstructing government agents, including the IRS, and circumventing law-enforcement efforts involving the suspension of electronic filing identification numbers;
- Telling franchisees to lie to the IRS during IRS compliance visits.
The court cited an IRS study that showed that the tax harm the
company’s franchisees caused in just five cities during a single
filing season was between $10 million and $25 million. The company
also had failed to comply with the terms of a preliminary injunction
order that the company had agreed to in October 2012.
In a Justice Department press release, Assistant Attorney General Kathryn Keneally said of the company, “As described by the court, this company grew large through abhorrent means—filing returns without customer authorization, forging customer signatures, pushing fraudulent loan products, and much more. As the court’s decision recognizes, a business model based on false and fraudulent conduct cannot be allowed to prevail.”
Acting IRS Commissioner Danny Werfel said, “Those who deceive their customers and defraud the U.S. Treasury will face swift legal action that puts an end to their corrosive conduct.”
The Justice Department press release calls return preparer fraud one of the largest problems facing the IRS. Last year, the Justice Department changed its procedures for handling tax refund fraud cases to make it easier for U.S. Attorneys to open tax-related grand jury investigations, bring charges, and obtain seizure warrants.
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Sally P. Schreiber (
sschreiber@aicpa.org
) is a JofA senior editor.
