The Jackson Hewitt lawsuits

The Department of Justice filed lawsuits yesterday alleging fraud by a franchisee of more than 125 Jackson Hewitt tax-preparation outlets in Chicago, Atlanta, Detroit, and  Raleigh-Durham, N.C. That leads to some hairy questions for their customers. When a tax preparer is accused of fraud, can the customer likewise face charges?

According to allegations in the DOJ's lawsuit, the targeted Jackson Hewitt franchises "encouraged" fraudulent tax preparation, including creating phony W-2 forms, using fabricated businesses and business expenses in pursuit of deductions; claiming "absurd" amounts for fuel tax credits, and committing "massive" fraud related to the federal earned income tax credit.

If the allegations are proven, where does that leave the customers? Is the DOJ planning to go after customers of the franchises, or is the onus always on the preparer? The lawsuit says these offices prepared and filed over 105,000 tax forms last year; that's an awful lot of people to pursue. But given the nature of the allegations, my guess is that some of those taxpayers may have some 'splainin' to do. As Eric Smith, a spokesman for the IRS, notes, "In the end, you're responsible for the accuracy of the return. You are signing the return."

Jackson Hewitt's reponse to the lawsuit mentions that each franchisee operates independently and is responsible for acting with integrity and in compliance of the law. There's certainly no suggestion that the 6,375 or so other Jackson Hewitt stores will be flagged by the DOJ.

But what will the parent company do to help affected customers in the midst of having their taxes prepared by these outlets? Will Jackson Hewitt steer them toward alternate tax preparers if they request it? In its response yesterday, the company said it "values its relationship with its customers and continues to assist them with their upcoming income tax filing requirements." In this situation, what, exactly, does that mean?

Stay tuned...