"We have pruned down to a healthy franchise base," Hewitt said. That leaves the chain with 4,200 stores, compared to about 10,000 for market leading H&R Block.

Besides buying more stores, Liberty has also broadened its compliance efforts. In April, the company created an Executive Task Force to deal with the issues of problem store operators. Late in the summer, the company hired Richard Ernst, the deputy commissioner of New York's Department of Taxation & Finance as part of the effort.

Hewitt reported new territory sales through November dropped to 26 from 99 for the prior year's comparable period. "The impact of last year's negative publicity was larger than expected," he said. He also said many existing franchisees were not comfortable with opening new locations. Moreover, Liberty has ended its relationship with Wal-Mart.

The company experienced growth with its newer SiempreTax stores, designed to reach Spanish-speaking taxpayers. However, Hewitt said there is also a rise in the number of company-owned stores in this operation, compared to about 24 last year, although he did not have exact figures handy.

"We have a consolidation with both Siempre and with Liberty because of our compliance efforts and our pruning the system," Hewitt said.

Like other tax franchisors, Liberty loses money in the fall quarter and this year, results declined with the drop in franchisee sales and in transfer of stores among franchisees hurting revenue.

The loss for the most recently ended period was $9.3 million, three-percent larger than $9.1 million a year ago. Revenue for the quarter was $7.2 million, off 8.1 percent from $7.9 million in last year' corresponding period.