Justice Department Sues National Tax Preparation Firm and Franchisees to Stop Alleged Pervasive Tax Fraud
Federal Lawsuits in Dayton, Ohio; Chicago; Indianapolis; Las Vegas; and Kansas City, Kan., Seek to Shut Down Operator of Instant Tax Service and Five Franchisees
The United States has filed civil injunction lawsuits in five cities seeking to shut down both the company that operates Instant Tax Service (ITS) as well as five owners of ITS franchises, the Justice Department announced today. According to government complaints filed in the cases, the franchising company ITS Financial LLC, headquartered in Dayton, operates what it claims is the nation’s fourth-largest tax-preparation business. In the complaints, the Justice Department accuses ITS Financial and its owner, Fesum Ogbazion, of deliberately ignoring systemic and pervasive fraud by ITS franchisees.
The complaints allege that ITS franchisees across the country intentionally prepare and file fraudulent tax returns to maximize their customers’ refunds. They do so, according to the complaints, so that ITS Financial and its franchisees can extract large tax preparation fees, as well as various charges that Ogbazion refers to as “junk fees,” directly from their customers’ refund checks. The government claims these fees are outrageously high – for example, up to $1,000 for preparing tax returns in as little as 15 minutes – and are often not disclosed to customers.
The franchisees named in the complaints allegedly invent phony businesses, fabricate deductions, falsify filing statuses, claim bogus dependents and disregard rules for claiming the earned income tax credit. The Justice Department alleges that ITS employees at these franchises have little tax preparation experience and that the franchise owners encourage them to prepare fraudulent tax returns or are aware that the employees do so. For example, one complaint alleges that David Franklin, who operates multiple ITS stores in Indianapolis, held a two-week training course in 2010 in which his employees were explicitly instructed to prepare fraudulent tax returns.
The complaint against ITS Financial states that the estimated tax losses from allegedly fraudulent return preparation in 2011 at ITS locations in St. Louis, Kansas City, Chicago, Indianapolis and Las Vegas exceed $16 million.
One of the government’s court filings quotes Ogbazion as allegedly saying that he intentionally does not track complaints of fraud made against his ITS franchisees because he “wouldn’t be able to sleep” at night.
“Hard-working Americans deserve to rest assured that their tax return preparers are not ripping them off,” said John A. DiCicco, Principal Deputy Assistant Attorney General of the Justice Department’s Tax Division. “Throughout this filing season, Justice Department attorneys and Internal Revenue Service agents have been tirelessly investigating cases of return preparer fraud. We will not hesitate to seek civil court orders and – where appropriate – criminal prosecution to halt and punish this type of wrongdoing.”
“It’s critical for the nation’s taxpayers to have full confidence in the tax professionals helping them. The IRS is committed to working with the Justice Department to protect taxpayers from unscrupulous tax preparers,” said Steven T. Miller, Internal Revenue Service (IRS) Deputy Commissioner of Services and Enforcement. “As the tax deadline approaches, the IRS reminds taxpayers to be on the lookout for dubious deals promising big refunds.”
According to the government complaints, the defendants in the injunction lawsuits lure their mostly low-income customers by offering loans that the government asserts are false and deceptive. The defendants allegedly encourage their customers to apply for loans knowing that certain customers do not meet the undisclosed criteria to qualify. The complaints state that when customers apply for these loans – usually before the tax filing season even begins – ITS prepares “estimate” returns based on the customers’ last paycheck stubs. Although customers allegedly believe they are merely applying for loans, the government asserts that ITS franchisees and return preparers routinely file tax returns without having customers’ Forms W-2 and without the customers’ authorization. The complaint against ITS Financial alleges that it encourages its franchisees to lie to the IRS about the company’s practice of filing returns without Forms W-2.
All of these actions, the government asserts, allow ITS Financial and its franchisees to extract exorbitant fees from customers’ tax refunds. The complaint against ITS Financial cites recent news reports from Indianapolis and Kansas City, among other cities, in which customers are reported to have complained that Instant Tax Service filed their tax returns without their permission and took out large, hidden fees from their refunds.
Over the past few years, the Justice Department has successfully criminally prosecuted four individual tax return preparers affiliated with ITS franchises in Ohio and Missouri.
The injunction lawsuits name the following individuals and companies as defendants:
1) Dayton: Fesum Ogbazion, TCA Financial LLC, ITS Financial LLC and Tax Tree LLC
According to the complaint, Ogbazion is the sole owner of TCA Financial , which is a holding company for ITS Financial and Tax Tree. ITS Financial is allegedly the franchisor of ITS franchises nationwide. The government alleges that Tax Tree finances false and deceptive loan products to ITS customers nationwide.
2) Chicago: Emanuel Ghebremichael and ERG Financial Corporation (dba Instant Tax Service)
According to the complaint, Ghebremichael is the sole shareholder of ERG Financial, which owns 16 ITS stores and kiosks in the Chicago area.
3) Indianapolis: David Ray Franklin Jr., Rachel Wiggins, William Brown and Instant Tax Refund Service (dba Instant Tax Service)
According to the complaint, Franklin and Wiggins are the president and chief financial officer, respectively, of Instant Tax Refund Service, and Brown manages one of the busiest of Franklin’s 22 ITS stores and kiosks in the Indianapolis area.
4) Las Vegas: Benyam Tewolde, Yordanos Kidane and Koraggio LLC (dba Instant Tax Service)
According to the complaint, Tewolde and Kidane are the husband-and-wife owners of Koraggio, which owns multiple ITS stores that prepared over 5,000 tax returns in 2011.
5) Kansas City, Kan.: Semere Tsehaye, Ahferom Goitom, A&S Tax Services LLC and ERI Enterprises LLC (dba Instant Tax Service)
According to the complaint, Tsehaye, the owner of A&S Tax Service and ERI Enterprises, operates one ITS store in Kansas City, Kan., and five stores in Kansas City, Mo., through A&S Tax Services. He also allegedly operates 14 ITS stores in St. Louis and East St. Louis, Ill., through ERI Enterprises. The complaint states that Goitom, who is Tsehaye’s brother, is the manager of one of Tsehaye’s ITS stores in Kansas City, Kan.
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 tax returns. Information about these cases is available on the Justice Department website .
United States v. David Ray Franklin, et al. Complaint for Permanent Injunction and Other Relief (PDF)
United States v. Benyam Tewolde, et al. Complaint for Permanent Injunction and Other Relief (PDF)
United States v. Emanuel R. Ghebremichael, et al. Complaint for Permanent Injunction and Other Relief (PDF)
United States v. Semere Tsehaye, et al. Complaint for Permanent Injunction and Other Relief (PDF)
United States v. Fesum Ogbazion, et al. Complaint for Permanent Injunction and Other Relief (PDF)