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Estimated reading time: 2 minutes, 9 seconds

South Carolina Liberty Franchisee Shuttered

dojA federal court has ordered the owner of a Liberty Tax Service franchise in Columbia, S.C., to stop preparing federal tax returns for others. Christopher Paul Haynes, who operated three Liberty stores in the Columbia area, and was accused of filing bogus claims for the Earned Income Tax Credit and also engaging in fee gouging and using phony Preparer Tax Identification Numbers.

Haynes had also operated two Tennessee Liberty stores in 2011 and 2012 and is a Liberty area developer. As an area developer, he has the right to sell franchise territories in parts of Georgia, Tennessee and North Carolina. In 2012, he was the area developer for 27 Liberty locations.

Haynes is accused of using some tools that are standard for increasing client refunds: false or inflated Schedule C business income and expenses and bogus dependents to obtain improper or inflated Earned Income Tax Credits. In one case, a preparer allegedly manufactured $13,150 in net losses for 2010 and $13,093 in net losses for 2012 for a customer's arts and craft business, that was actually only a hobby for the client. The losses were used to offset other income.

The firm was accused of allowing preparers to use incorrect Preparer Tax Identification Numbers and filing returns without any PTINs. Haynes allegedly paid some preparers "under the table" without reporting income or withholding taxes. The Department of Justice complaint cited the cases of three employees for whom taxes were not withheld.

The IRS also claimed the firm continued to follow shoddy practices, despite its scrutiny. The IRS repeatedly warned some preparers about lack of due diligence in filing claims for the EITC, while the firm did not change any of its procedures, despite Haynes' becoming aware of an IRS investigation in 2015.

In addition, authorities said Haynes charged "by the form" fees. Based on the fee structure a customer with a Form 1040 with a Schedule A, Schedule C, Child Tax Credit and an Earned Income Tax Credit could face fees of $600 or more for preparation.

The firm paid entry-level return preparers at or above minimum wage. But they were paid a bonus at the end of the tax season based on the number of returns prepared and filed, usually a percentage of net fees collected from prepared returns. The percentage scaled up as the total number of returns prepared and filed by the employee increased so that they were rewarded for preparing as many returns as possible for the highest possible preparation fee.

The firm also charged customers fees of $25 to $50 for copies of complete returns even though the law requires taxpayers be given a copy of their returns.

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