Instant Tax Service Closed by U.S. Judge for Fraudulent Practices

[kcjenkins]

(Bloomberg) Instant Tax Service, described by a U.S. judge as the fourth-biggest tax preparation business in the nation, was ordered closed after a court found it engaged in abusive and fraudulent practices.

U.S. District Judge Timothy S. Black in Dayton, Ohio, said the “evidence of fraud and deception’’ perpetrated by ITS Financial LLC, the company’s formal name, and chief executive officer Fesum Ogbazion, was so overwhelming that an order barring it from the tax-return preparation business “is necessary to protect the public and the Treasury.”

Evidence presented during a nine-day trial in July showed the CEO and his businesses encouraged franchisees to file false tax returns and lured low-income customers into its offices by marketing fraudulent loan products, Black said. Other wrongdoing included forging customer signatures on loan checks and using the proceeds to operate its businesses, he found.

The company, in a post-trial filing, argued the evidence told a “different story.” The government’s proof was drawn from isolated incidents over several years, Instant Tax Service argued, contending it had taken “corrective action” that remedied most of the past problems identified at trial.

The “death penalty” injunction was unwarranted, it said in the July 31 filing.

Black was unconvinced.

“Defendants’ repeated attempts at trial and in argument to downplay the gravity of their lawlessness was stunning,” the judge said in his decision. “The court concludes that even today defendants have not fully recognized their culpability.”

The case is U.S. v. ITS Financial, 12-cv-95, U.S. District Court, Southern District of Ohio (Dayton).

[Mr. Pencil]

the fourth-biggest tax preparation business in the nation, was ordered closed

Gee, what a harsh penalty! " Don't do that any more."

[MsTabbyKats]

Just looked at their website.

It looks like they specialize in those who need quick "refunds".

I wonder if people who work in this kind of place even know how to do a real tax return.

[Guest Taxed]

Does NOT matter if they know how to do a return correctly as long as their customers think they are getting more than you or i could get them in refund the legit way

Every tax season I get a few clowns who will call me to get a quote, and they start by saying so and so is saying I can get $x in refund, can you beat that?

[Catherine]

Does NOT matter if they know how to do a return correctly as long as their customers think they are getting more than you or i could get them in refund the legit way

Every tax season I get a few clowns who will call me to get a quote, and they start by saying so and so is saying I can get $x in refund, can you beat that?

I've had a couple of folks give calls like that over the years. If they sound like real refund-shoppers, I ask them how they look in orange. The response, "Huh?!" leads me to inform them that tax fraud comes with prison sentences. If they merely sound misguided, I tell folks they can get their taxes done right, cheap, and quick. Pick any two.

[kcjenkins]

From the Complaint filed by the IRS, just a few tidbits, since it is 37 pages long:

According to its website, Instant Tax Service is the “4th largest tax preparation

company” in America, one of “the fastest growing franchises,” and the “number one new

franchise” brand in the country as of 2009. Potential new franchisees are told, among other

things, that, “[n]o tax experience [is] necessary!” Instant Tax Service also claims to have

“hundreds of locations in 34 states.” Today, those locations are owned by franchisees who have

contracted with ITS Financial. Many of Instant Tax Service’s most profitable franchises—

including five of its six largest—engage in systemic and pervasive tax fraud. Defendants are

aware of, and even enable, much of the fraud engaged in by these franchisees.

Ogbazion also wholly owns Tax Tree, LLC, an entity he created and operates to

finance false and deceptive loan products, including Instant Cash Loans (ICLs) and Refund

Anticipation Loans (RALs), marketed nationwide to Instant Tax Service customers. Tax Tree’s

relationship to Instant Tax Service is not disclosed to customers. Rather, documentation

provided to Instant Tax Service customers falsely suggests that Tax Tree is an independent,

third-party lender.

Instant Tax Service uses its false and deceptive loan products principally to lure

customers into its local stores so that franchisees may charge them unconscionably high tax

preparation fees and added fees. Ogbazion calls the added fees “junk fees” and “revenue

generators.” The junk fees include bogus charges for: “service bureau,” “document

preparation,” “refund estimate,” “technology/software,” “account set up,” “check printing,” and

“Efile/electronic transmission.” Collectively, the tax preparation and junk fees charged by

Instant Tax Service typically average $400–$500, and sometimes run as high as $1,000 or more,

for as little as 15 minutes of return preparation.

Although Instant Tax Service boasts of being one of the fastest growing tax

preparation franchises and “Entrepreneur Magazine’s top new franchise,” it has been

overwhelmed for years with complaints from taxpayer customers about poor service,

incompetence, and most predominantly, fraud. For instance, in the past 36 months consumers

filed over 900 complaints with the Better Business Bureau in 48 service areas across the country

covering Instant Tax Service stores nationwide. Hundreds of additional complaints have been

posted to online consumer protection forums such as “The Ripoff Report.” And Instant Tax

Service offices nationwide have been the subject of numerous local TV news consumer fraud

reports. Most of the complaints focus on Instant Tax Service stores filing tax returns without the

customers’ knowledge or consent, making false and deceptive representations to customers, and

charging unconscionably high and undisclosed fees. Moreover, IRS audits of individual Instant

Tax Service customers, as well as other efforts by the IRS to monitor Instant Tax Service’s

compliance with the internal revenue laws, demonstrate systemic misconduct by Instant Tax

Service locations nationwide.

And the funniest part of this order, to me, was the last line of this section:

Despite knowing of these widespread and pervasive complaints, as well as having

actual knowledge of much of the franchises’ illegal conduct, defendants have not taken any

meaningful steps to stop the misconduct. Indeed, defendants deliberately and purposely ignore

their customers’ protests because, claims Ogbazion, if he or his company monitored them, he

“wouldn't be able to sleep” at night.

Moreover, ITS Financial has little incentive to stop the wrongdoing, because it

directly profits from its franchisees’ misconduct by taking a percentage (approximately 18%) of

all franchisee gross revenues. And all or most of the junk fees for “transmission,” “technology,”

“account set up,” and “check-print” are ITS Financial and/or Tax Tree fees, not franchisee fees,

that ITS Financial and Tax Tree retain.

[MsTabbyKats]

Yeah...I get the ones who want estimates too.

My response:

I can't tell you the refund until I do the tax return.

You'll have to pay me in advance if you want the return done. (I don't charge in advance...and I don't care if someone is a slow payer. This is just what I tell "the shoppers".)

But, I don't do rapid refund...loan...checks to pick up....etc.

I only do direct deposit to a bank account. When I tell them that, they lose interest in me.

I've probably said this a few times. Most of my clients are internet based...and most are referrals. My husband also takes in work for me in his store...and he gives everyone my card...despite me asking him not to do that. In addition...he had a "tax services" sign in front of the store. I told him NOT to put that up. I live on the border of rich/poor....and I know the type of clientele that attracts.

[kcjenkins]

Gee, what a harsh penalty! " Don't do that any more."

Janien, there is just, at this point, a Preliminary Injunction, http://www.leagle.com/decision/In%20FDCO%2020121029955

while they continue to build the case. Given the nature of the details in the Complaint, it's obvious that there is a lot more that is going to happen to this guy, and, no doubt, to most, if not all, of his 'franchisees' as well

[ILLMAS]

What are the chances of them just reorganizing under a different name or selling the company. Reminds me of AA.

[Mr. Pencil]

there is just, at this point, a Preliminary Injunction, http://www.leagle.com/decision/In%20FDCO%2020121029955 while they continue to build the case.

Given the nature of the details in the Complaint, it's obvious that there is a lot more that is going to happen to this guy, and, no doubt, to most, if not all, of his 'franchisees' as well

Nope--they are not continuing to build the case. Nothing more will happen to him. The case is closed, and no one goes to jail. Or even gets fined.

Your link is to the preliminary injunction from a year ago. The actual trial was this summer, and now the judge has given his final decision and order. http://rothcpa.com/wp/wp-content/uploads/2013/11/ITS-opinion3.pdf. The 233 pages can be summarized, "Don't do that any more."

[Guest Taxed]

No Jail time for check forgeries??

[kcjenkins]

They were not REALLY the 4th largest, although they claimed in their advertising that they were. The truly scary part is that the advent of more advanced tax software has made this so easy. They advertised that "no tax experience is necessary". And that was true, since all they had to do was teach them how to use the software, not understand it. Basically, all their 'franchisees' were crooks, but the use of the software made it easy for them to turn out returns that LOOKED correct and professional. And I don't know how you protect against that, it's always going to be a case of catching them AFTER they commit a lot of crimes.

One thing is for sure. If the government does not put a whole bunch of these people in prison for this, and the owner of the companies that set this up in prison for a VERY LONG TIME, it could do great harm to the entire system and the entire country!

[Mr. Pencil]

The truly scary part is that the advent of more advanced tax software has made this so easy.

I agree with you on this one, KC! And it is not just our business. Insurance, banking, education--anything based on paper can be computerized to hide malpractice. I don't know the details of this case, why the government didn't file criminal charges. There were four related civil cases against the worst franchisees. But fraud is hard to prove, and this one already took four years. Notice in the preliminary injunction you linked the defendant was allowed to continue full operations for another year.

[Guest Taxed]

I thought they proved multiple instances of check forgeries? Doesn't that call for some jail time??

[easytax]

They were not REALLY the 4th largest, although they claimed in their advertising that they were. The truly scary part is that the advent of more advanced tax software has made this so easy. They advertised that "no tax experience is necessary". And that was true, since all they had to do was teach them how to use the software, not understand it. Basically, all their 'franchisees' were crooks, but the use of the software made it easy for them to turn out returns that LOOKED correct and professional. And I don't know how you protect against that, it's always going to be a case of catching them AFTER they commit a lot of crimes.

One thing is for sure. If the government does not put a whole bunch of these people in prison for this, and the owner of the companies that set this up in prison for a VERY LONG TIME, it could do great harm to the entire system and the entire country!

Unfortunately --- that's the way our leaders have chosen to do things and it's been going that way for years. Hardly anyone "in power" takes a hard fall. For some reason --- ripping off 100's, 1,000's, etc. of people using "paper" methods and fraud don't really qualify as crimes that require "hard time"; only if violent. Just so you know, my opinion is that the people who use the "paper crime" approach should do time with those that are violent (and not several years AFTER they're found out) ---- maybe then (with REAL penalties to the actual person doing the crime) would things start changing. Right now the chances of being caught are statistically low, actually being charged even lower and actually doing time -- almost non-existent. Therefore - NO REAL PENALITIES, and even if time is given; a "club house prison --- "as these folks aren't really hardened criminals" they weren't violent were they? Doesn't matter that they ruined 100's, 1,000's etc. they don't deserve "hard time" with the violent ones.

Sorry, pet peeve of mine ---- if they had "hard time" and done quickly when caught --- a lot wouldn't take the chance, etc.

I agree with you on this one, KC! And it is not just our business. Insurance, banking, education--anything based on paper can be computerized to hide malpractice. I don't know the details of this case, why the government didn't file criminal charges. There were four related civil cases against the worst franchisees. But fraud is hard to prove, and this one already took four years. Notice in the preliminary injunction you linked the defendant was allowed to continue full operations for another year.