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Government Goes after Instant Tax Service Franchisees for Fraudulent Returns

Instant Tax Service
Window of an Instant Tax Service, photo/bmm

LOS ANGELES – As the deadline for filing tax returns is fast approaching, tax preparation companies are busy advertising their services to beat the competition.

  One company, self-proclaimed as one of the fastest growing tax services in the nation, is having to work a little harder than others. Last year the tax preparation firm was sued by the U.S. government on claims of violating federal tax laws through its franchisees. 

After complaints were filed last March against Instant Tax Service and franchisees in five different states alleging store owners were intentionally filing fraudulent tax returns to maximize customer refunds, a district court in California took its own action. The court order permanently barred a husband and wife team out of Rancho Palos Verdes from engaging in certain abusive practices in their multiple Los Angeles offices.

Central District Judge Michael Fitzgerald signed a permanent injunction order stating the franchise owners are now barred from preparing tax forms with unsubstantiated business income, falsely claiming education credits, improperly claiming false filing status and reporting false dependents. They are also prohibited from selling deceptive loan products, and preparing tax returns based on information from employee paystubs rather than employer-issued W-2 forms.

Henock Teferi and his wife operating under their Plover Financial Services company, have been shut down since 2011. The court order issued last month requires them to select an outside monitor to review a sample of tax returns that they prepare in connection with their tax preparation business. The franchisees must also report to a designated representative of the United States government to ensure compliance with the injunction. In addition, the order states that they are barred from marketing abusive loan products, including holiday or instant cash loans or advance loan products offered to customers based on information obtained from customers’ paystubs.

The California franchisees have consented to the permanent injunction without admitting the allegation brought against them. If they violate the injunction, they may be subject to civil and criminal sanctions for contempt of court.

The Department of Justice is attempting to permanently shut down Instant Tax Service. The franchisor operates under parent company ITS Financial LLC in Dayton, Ohio. The five civil injunction suits allege Instant Tax has been “deliberately ignoring systemic and pervasive fraud through its franchisees.” Also named in the government’s lawsuit against the franchisor is owner Fesum Ogbazion. The court has entered a preliminary injunction, and trial is scheduled for May 2013.

Business as usual?

On its website today, Instant Tax Service advertises its services as usual—its beautiful offices, a 2013 loan program and opportunities to buy franchises. It also advertises its high ratings in franchise publications. In 2009 it was ranked 93rd in Inc. Magazine’s Top 500 fastest growing private businesses, showing its three-year growth at 1,658 percent, up from 2008 revenue of $27.2 million. The tax preparation franchisor also promotes its success in Entrepreneur magazine’s Franchise 500, listed as No. 1 in 2007.

Now, right at tax season, those accolades at the bottom of its web page are marred by the required posting of the Department of Justice complaint, the lawsuit that is trying to shut its business down permanently: United States of America v. Fesum Ogbazion, ITS Financial, and Tax Tree, issued on October 29, 2012. 


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About Janet Sparks

Janet Sparks's picture

Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.