Federal Court in Florida Bars Former LBS Tax Services Franchisor From Owning Tax Return Preparation Businesses and Preparing Tax Returns For Others
Courts also Order Defendants to Disgorge Ill-Gotten Gains totaling $10.5 Million
Today, a federal district court in Orlando, Florida barred the former LBS Tax Services franchisor, Walner Gachette, from preparing tax returns and entered a $5 million judgment against him. According the government’s complaint, Gachette was responsible for growing LBS Tax Services from a single store in Orlando in 2008 to 239 stores in 2013 located in Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, and Texas, with a stated goal of 1,000 stores by 2016. Since September 2014, the United States filed 11 lawsuits in Orlando, Miami and Tampa, Florida against Gachette and 14 former LBS franchisees and managers to bar each from owning or operating a tax return preparation business and preparing tax returns for others.
The former LBS Tax Services franchisees and managers sued by the government include Douglas Mesadieu of Orlando, Florida; Jean Demesmin of Mt. Dora, Florida; Tonya Chambers of Winter Garden, Florida; Kerny Pierre-Louis of Windermere, Florida; Jehoakim Victor of Orlando, Florida; Lauri Rodriguez of Tampa, Florida; Demetrius Scott of Orlando, Florida; Jason Stinson of Longwood, Florida; Wilfred Antoine of Lake Worth, Florida; Milot Odne of Tampa, Florida; Alexander Baraz of Spring Hill, Florida; Patrick Clarke of Hallandale Beach, Florida; Ruby Rodriguez of Orlando, Florida; and Christopher Lawrence of Coral Springs, Florida. The government alleged that many of these former LBS franchisees and managers initially operated their tax returns preparation stores as “LBS Tax Services,” but later changed their stores’ names. The United States also sued Kenneth Aikens of Brooklyn, New York, who worked for Lawrence as a tax preparer and manager before Aikens assumed ownership of several tax return preparation stores in the Miami area, according to the government’s complaint.
According to the United States’ complaints, at least 239 tax preparation stores were affiliated with LBS Tax Services in 2013. These 239 stores – 192 of which were owned by the defendants – prepared more than 55,000 federal income tax returns, according to the government’s complaints. The United States alleged that the defendants targeted primarily low-income customers with deceptive and misleading advertisements (one such advertisement frequently used by the defendants’ stores suggests that potential customers will receive a tax refund of more than $3,000 “per child”), prepared and filed false tax returns that unlawfully increased their customers’ refunds, and profited by charging excessive preparation fees – all at the expense of their customers and the U.S. Treasury.
According to the complaints, fraudulent schemes and practices occurred at the defendants’ stores which overstated customers’ federal income tax refund by:
- Falsely claiming the Earned Income Tax Credit by inflating or decreasing a customer’s income or deductions;
- Claiming improper filing statuses that increase the amount of the standard deduction (e.g. claim the head of household status for married customers who are ineligible to do so);
- Fabricating self-employment businesses and related business income and expenses;
- Fabricating deductions such as charitable contributions and unreimbursed employee business expenses, including improperly deducting business mileage based on customers’ nondeductible commuting mileage; and
- Falsely claiming education credits.
In addition to these fraudulent schemes and practices, the defendants charged excessive fees for each additional tax form attached to the tax return, according to the government’s complaints. After preparing and filing the returns based on the unlawful practices detailed above, the defendants allegedly subtracted fees directly from the refunds. According to the complaints, the defendants’ customers were often unaware of the fees that the defendants reaped. In an attempt to increase their profits, the defendants’ stores allegedly implemented “$999 charge weeks,” during which the stores would charge as many customers as possible $999 for the preparation of a tax return, according to the government’s complaints.
Through the case against Gachette and the other lawsuits, federal courts in Orlando and Miami, permanently barred Gachette, Mesadieu, Demesmin, Chambers, Pierre-Louis, Scott, Antoine, Lawrence, Aikens, Victor, and Rodriguez from owning tax preparation businesses and preparing tax returns. In addition, these courts have also ordered many of the defendants to disgorge to the United States the proceeds that they received through their tax preparation businesses. Judgments were entered in favor of the United States and against Gachette in the amount of $5 million, against Lawrence in the amount of $1.4 million, against Demesmin, Pierre-Louis, and Scott in the amount of $1 million each, against Aikens and Chambers in the amount of $500,000 each, and against Antoine in the amount of $100,000.
In addition to these final judgments and permanent injunctions, courts have entered preliminary injunctions in cases still pending against Stinson, Odne and Baraz. Odne and Baraz consented to these preliminary injunctions; however, Stinson did not. The Eleventh Circuit Court of Appeals upheld the preliminary injunction against Stinson issued by a federal court in Orlando, Florida. The preliminary injunctions bar these individuals from owning and operating tax preparations businesses and preparing tax returns while the lawsuits against them are pending.
Return preparer fraud is one of the IRS's Dirty Dozen Tax Scams for 2016. The IRS has some tips on their website for choosing a tax preparer. In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers. Information about these cases is available on the Justice Department’s website. An alphabetical listing of persons enjoined from preparing returns and promoting tax schemes can be found on this page. If you believe that one of the enjoined persons or businesses may be violating an injunction, please contact the Tax Division with details.