4th Largest Tax Prep Firm in U.S. Shut Down for Fraudulent Conduct
(Parker Tax Publishing November 23, 2013)

Calling the repeated fraudulent and deceptive conduct by the fourth largest tax preparation firm in the United Stated "astonishing" and the evidence of such conduct "overwhelming," an Ohio district court judge permanently barred the organization, as well as its CEO and owner, from operating, or being involved with in any way, any business relating in any way to the preparation of tax returns. In U.S. v. ITS Financial, LLC, 2013 PTC 349 (S.D. Ohio 11/6/13), the judge found the company's repeated attempts to downplay the gravity of their lawlessness "stunning" and said the injunction was necessary to protect the public and the Treasury. One of the more heinous acts committed by the owner of the company involved forging customers' signatures on duplicate refund checks that subsequently caused collection proceedings against the customers for a situation they knew nothing about. Several of them saw their credit ratings ruined.

Background

Fesum Ogbazion is the founder, CEO, and sole owner of ITS Financial, Tax Tree, and TCA Financial. Instant Tax Service is the brand of the product provided by ITS Financial franchises across the United States. Instant Tax Service is a nationwide tax preparation franchise that Ogbazion developed and that claims to be the fourth largest tax preparation franchise in the nation. As the founder, sole owner, and CEO of Instant Tax Service and ITS Financial, Ogbazion makes all the significant decisions for the company.

Forgery of ITS Financial Customers' HSBC Refund Checks

According to court documents and testimony, in January 2007, Ogbazion instructed an Instant Tax Service employee to forge customers' signatures on a series of 26 HSBC loan checks. These 26 customers had their tax returns prepared at an Instant Tax Service office and received these HSBC checks from Instant Tax Service as part of Instant Tax Service's loan program. Ogbazion, through his corporate entity, owned the particular tax preparation office where these 26 customers had their tax returns prepared and signatures forged. The HSBC checks were physically printed by an Instant Tax Service employee at the Corporate Instant Tax Service office.

An Instant Tax Service employee printed the duplicate checks. The duplicate checks had the 26 customers' names on them and were for the same amount that the customers had originally received. All of the 26 customers took their original HSBC loan check from Instant Tax Services and either deposited the checks into their own account or cashed them at a check cashing establishment.

After these 26 customers cashed their original loan checks, Ogbazion asked an employee of the Corporate Instant Tax Service office to reprint duplicates of those customers' checks. He told the Instant Tax Service employee to bring the duplicate checks over to the corporate headquarters. He then instructed a low-level employee in the corporate call center to sign the customers' names on the duplicate checks. After the call center employee forged the customers' signatures on the checks, Ogbazion instructed his CFO, Peter Samborsky, to deposit the forged checks into the company's corporate checking account. Samborsky deposited the forged checks. The forged duplicate checks totaled approximately $32,000. ITS Financial then used the money from the forged duplicate checks to operate the company. Prior to having the customers' names forged on the checks, Ogbazion did not get permission from the customers to sign their names. In fact, the customers did not even know that their names were being forged on duplicate checks. The forged checks were deposited on January 10, 2007. At that time, ITS Financial had no money in any bank account to operate the business.

When customers first approached ITS about the fraud, ITS made up stories to cover-up the forgeries. They told one customer at least that the forged checks were the result of a rogue employee, whom ITS Financial had fired due to the misconduct. Ogbazion also lied to one of his employees, Tina Davis, after she discovered the forgeries, telling her that the company's CFO was taking care of it. Ogbazion also told a false story to his leadership team about the forged HSBC checks in December 2009. He lied and said that allegations by one of the ITS customers, Robert Brown, whose signature was forged by ITS, were "completely made up."

HSBC began collection proceedings against Brown and took part of his following year's tax refund to pay for the forged check.

Ogbazion told another story about the HSBC checks to a small number of corporate executives at ITS Financial in June 2009. At that time, he fabricated a story claiming that HSBC had asked him to submit forged checks to help HSBC as part of a fraud detection program it was running. The HSBC fraud detection story was another lie that Ogbazion admitted at trial was a complete fabrication.

Failure to Pay Employment Taxes

Despite knowing he legally had to pay his company's employment taxes, Ogbazion did not pay them for the second two quarters of 2009, the first two quarters of 2010, and three additional quarters. Ogbazion knew it was important not to willfully fail to pay employment taxes. After Ogbazion failed to pay over $1,000,000 in employment taxes, he tried to settle the amount he owed by offering to pay the IRS $5,000 to settle all claims.

Paystub Filings

In January 2006, Ogbazion personally instructed two employees to file paystub prepared returns. The returns Ogbazion instructed the employees to file were prepared using paystubs when customers came in for a holiday loan. After customers were denied the loan, the returns were placed in "hold" status to be filed only if the customer returned with a W-2. Ogbazion nevertheless instructed the employees to submit these returns--which were prepared with paystubs ostensibly for the purpose of submitting a holiday loan application--to the IRS. The motivation at ITS's corporate-owned stores when filing with paystubs was to get the tax return filed to lock in the customer before he or she could go anywhere else. From ITS Financial's standpoint, it did not matter whether the tax return was done correctly. The point was just to get the tax return in.

Criteria for Injunction Against a Tax Preparation Firm

Under Code Sec. 7402, district courts have jurisdiction to issue injunctions. Under Code Sec. 7408, the IRS can seek to enjoin any person from further engaging in specified conduct. Specified conduct includes any action, or failure to take action, which is subject to penalty under Code Secs. 6700, 6701, 6707, or Code Sec. 6708. Code Sec. 6701 provides for the imposition of a penalty on any person (1) who aids or assists in, procures, or advises with respect to, the preparation or presentation of any portion of a return, affidavit, claim, or other document; (2) who knows (or has reason to believe) that such portion will be used in connection with any material matter arising under the internal revenue laws; and (3) who knows that such portion (if so used) would result in an understatement of the liability for tax of another person.

District Court's Opinion

The district court concluded that Ogbazion and ITS Financial provided aid, assistance, and advice to others in the preparation of tax returns that they knew, or had reason to believe, if used when preparing tax returns for customers, would result in understatement of tax liabilities on those customers' tax returns. Among the conclusions reached by the court were that Ogbazion and ITS Financial:

(1) prepared false tax documents, filed false documents with the IRS, and encouraged others to do so;

(2) held training sessions for their franchisees and ITS Financial area developers to prepare and file tax returns based on paystubs;

(3) instructed their franchisees how to back-date documents and change dates in computers used to prepare paystub returns to conceal the practice from federal investigators;

(4) instructed their franchisees how to create fake W-2s to place in customer files, as well as to dispose of paystubs used to prepare and file tax returns, to conceal the practice of paystub filing from the IRS;

(5) held off-the-record conference calls with select franchisees to ensure that they did not file too many paystub returns and attract attention from federal authorities; and

(6) filed tax returns for customers without their permission and encouraged their franchisees to do the same, in contravention of internal revenue laws.

The court noted that large-scale filing of paystub returns inevitably leads to the filing of returns that understate a taxpayer's liability, in addition to inevitably resulting in the submission of a false document to the IRS.

Based on the evidence presented at trial, the court concluded that an injunction against Ogbazion and ITS Financial under Code Sec. 7408 and Code Sec. 7402 was appropriate to prevent the recurrence of their conduct violating Code Sec. 6701. (Parker Tax Publishing Staff Writers)

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