WASHINGTON – A federal court has entered a permanent injunction ordering ITS Financial LLC, the parent company of the Instant Tax Service franchise, to cease operating, the Justice Department announced today. The injunction order, which was signed yesterday by Judge Timothy S. Black of the U.S. District Court for the Southern District of Ohio, 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. The court issued the order following a two-week trial in Cincinnati in June 2013.
Instant Tax Service, which is based in Dayton, Ohio, claimed to be the fourth-largest tax-preparation firm in the nation. According to the court, ITS Financial had about 150 franchisees that filed over 100,000 tax returns each year in 2011 and 2012. Two other entities owned by Ogbazion, Tax Tree LLC and TCA Financial LLC, were also defendants in the case and were also ordered to cease operating.
The court found that Ogbazion and his defendant companies had:
- Filed tax returns for customers without their permission and encouraged franchisees to do the same;
- Clandestinely trained and encouraged franchisees to prepare and file tax returns prematurely with paycheck stubs that omitted and understated income and inevitably resulted in the submission of false federal tax returns;
- Defrauded customers, who were largely low-income, by marketing false and fraudulent loan products to lure them into the tax-preparation offices;
- Defrauded customers by requiring franchisees to charge phony and exorbitant fees;
- Forged customers' signatures on loan checks and used those forged checks to operate Ogbazion's businesses;
- Willfully failed to pay over $1 million of their own employment taxes and lied about assets in connection with the collection of those taxes, while hiding money in a secret bank account and defrauding the United States and third party creditors;
- Lied on government forms and encouraged franchisees to do the same;
- Obstructed government agents and materially assisted franchisees in circumventing Internal Revenue Service (IRS) law-enforcement efforts involving the suspension of electronic filing identification numbers; and
- Told franchisees to lie to government agents in connection with IRS compliance visits.
The court credited an IRS study concluding that the tax harm caused by Instant Tax Service franchisees in five cities in a single tax-filing season was between $10 million and $25 million.
"Defendants' harm to the public is extensive and egregious, indeed appalling," the court stated. "This is especially so given the nature of Instant Tax Service's core customer - the working poor - who are particularly vulnerable to [the] Defendants' fraudulent practices."
The court further stated: "Defendants' repeated attempts at trial and in argument to downplay the gravity of their lawlessness was stunning. The court concludes that even today [the] Defendants have not fully recognized their culpability. Ultimately, the nature, scope and gravity of [the] Defendants' offenses, and the unrepentant attitude toward their commission, demonstrate the necessity for a complete injunction putting the Defendants permanently out of business."
The court also concluded that Ogbazion and ITS Financial violated the terms of a preliminary injunction order that the court had entered in October 2012 with their consent. The court found that, despite their agreement to obey various lending and consumer-protection laws during the 2013 tax filing season, they violated several of those laws by discriminating against active-duty military personnel on loan applications and by failing to obtain a state lending license in a timely manner. The court determined that they violated the preliminary injunction by causing their franchisees to provide tens of thousands of customers with Truth-in-Lending Act disclosure forms falsely stating that the loans carried no finance charges and an annual percentage rate (APR) of zero.
"We are gratified by the court's decision, which serves to protect hard-working taxpayers who were targeted by Instant Tax Service, and also safeguards all honest taxpayers from the harm done by fraudulent tax filings," said Assistant Attorney General Kathryn Keneally of the Justice Department's Tax Division. "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."
"The court's decision sends a clear message to those who might be tempted to abuse the public trust provided to the tax preparer community," said Acting IRS Commissioner Danny Werfel. "Those who deceive their customers and defraud the U.S. Treasury will face swift legal action that puts an end to their corrosive conduct."
Assistant Attorney General Keneally thanked former and current Tax Division trial attorneys Nathan Clukey, Sean Green, Russell Edelstein, Jose Olivera and Gregory Van Hoey, along with paralegal Mahana Karimi, for their efforts on the case. She also thanked the many IRS attorneys and agents who participated in the investigation.
Return preparer fraud is one of the IRS's Dirty Dozen Tax Scams for 2013. The Internal Revenue Service has tips for choosing a tax preparer: www.irs.gov/Tax-Professionals/Choosing-a-Tax-Professional. In the past decade, the department's Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers. Information about these cases is available on the department website.