Tax Preparation Chain Faces Fraud Suits

The Justice Department has filed civil lawsuits in four states against operators of the tax preparation chain Jackson Hewitt. Investigators say the company encouraged customers to claim fake deductions and seek refunds based on phony earnings statements.

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And just in case taxpayers do not have enough to worry about, the Justice Department is suing a major tax preparation service for fraud.

Officials say Jackson Hewitt stores in four states cheated on tens of thousands of tax returns. As NPR's Scott Horsley reports, the case has led to calls for more oversight of the tax preparation industry.

SCOTT HORSLEY: The lawsuits say operators of more than 125 Jackson Hewitt storefronts in Chicago, Atlanta, Detroit and Raleigh-Durham fostered an environment where tax fraud was encouraged. Assistant Attorney General Eileen O'Connor says preparers turned a blind eye to phony W2s, imaginary dependents and trumped up expenses, including 25,000 gallons of gasoline that a barber claimed for business use.

Assistant Attorney General EILEEN O'CONNOR (U.S. Department of Justice): Some of the tax return preparers who were hired by these franchise operations were hired because they would not know any better.

HORSLEY: And that's part of the problem, says Roger Harris of the National Association of Enrolled Agents. Harris complains anyone can hang out a shingle and call himself a tax preparer.

Mr. ROGER HARRIS (Government Relations Chair, National Association of Enrolled Agents): If you go to get your haircut, you know that person has a license. Why should not be true of the person who prepares your taxes?

HORSLEY: Lawmakers have thought about adopting a licensing requirement for all tax preparers. But IRS Commissioner Mark Everson says any regulation won't stop fraud.

Mr. MARK EVERSON (Commissioner, Internal Revenue Service): The vast majority of returns are prepared correctly by diligent professionals. That is a cornerstone of our system.

HORSLEY: The operators targeted by the Justice Department represent only about two percent of all Jackson Hewitt franchises. Jackson Hewitt says it does not expect a material effect on profits.

Scott Horsley, NPR News.

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