A federal court has preliminarily enjoined ITS Financial LLC, the parent company that owns the Instant Tax Service tax-preparation franchise operation, the Justice Department announced today. Dayton, Ohio-based ITS claims to be the fourth-largest tax-preparation firm in the nation, according to the government complaint in the civil lawsuit. Judge Timothy Black of the U.S. District Court for the Southern District of Ohio signed the order, which also applies to the company’s CEO, Fesum Ogbazion. The defendants consented to the preliminary injunction.
The preliminary injunction will remain in force pending the court’s decision following trial in the case. Trial on the government’s suit seeking to shut down the defendants with a permanent injunction is scheduled to begin on May 20, 2013, in Dayton.
According to the government complaint in the case, ITS franchisees routinely prepare and file fraudulent federal tax returns, fabricate deductions and invent phony businesses. The suit further alleges that ITS franchisees file tax returns without customer authorization and without proper employer-issued W-2 wage statements, and charge customers exorbitant and bogus fees. Defendants and their franchisees allegedly lure mostly low-income customers into ITS stores by offering deceptive and misleading loans such as “Instant Cash” or “Holiday” loans, often before the tax return filing season begins. Defendants have denied the allegations in the complaint.
Under the terms of the preliminary injunction, defendants are barred from encouraging or preparing false or fraudulent tax returns, from filing tax returns without customer authorization, from charging customers exorbitant and bogus fees, from deceiving their customers and the government, and from otherwise violating the tax laws. In addition, defendants are barred from offering any Instant Cash loan or similar loan product that relies on a customer’s paystub (rather than an employer-issued IRS W-2 year-end wage statement), and from offering any loan product that violates any federal or state law. Defendants may offer only genuine loan products provided by independent, third-party lenders. The preliminary injunction also requires defendants, at their own expense, to hire third-party monitors who will review and audit tax returns prepared by all ITS franchisees. In addition, defendants must hire a neutral company to conduct “secret shopper” visits to ITS franchisees to test their compliance with the law.
The preliminary injunction order notes that the United States ultimately seeks to permanently bar ITS and Ogbazion from further operating a tax-preparation business.
In the past 10 years, the Justice Department’s Tax Division has obtained hundreds of injunctions to stop the promotion of tax-fraud schemes and the preparation of fraudulent returns. Information about these cases is available on the Justice Department’s website .