| Type | Public (OTC Markets Group: JHTX) |
|---|---|
| Founded | Norfolk, Virginia USA, (1982) |
| Headquarters | Parsippany, New Jersey USA |
| Key people | President and CEO: Harry W. Buckley; Executive Vice President, Chief Financial Officer and Treasurer: Daniel O'Brien; SVP Franchise Operations and Sales: Duane R. Mora; |
| Products | Financial Services Tax Preparation Refund anticipation loans Franchises |
| Revenue | $213.8 million USD (2010) |
| Net income | $7.5 million USD (2010) |
| Website | www.jacksonhewitt.com |
Jackson Hewitt Tax Service Inc. (OTC Markets Group: JHTX) is the second largest tax preparation service in the United States; responsible for preparing over 2.2 million computerized federal, state, and local individual income tax returns each year. Based in Parsippany, New Jersey, the company currently operates more than 5,802 franchise outlets and 724 owned offices, in 48 states and the District of Columbia. Roughly a quarter of Jackson Hewitt’s offices are located inside Wal-Mart and Kmart stores. Jackson Hewitt offers tax refund-anticipation loans, free electronic filing, tax-preparation training, and tax audit representation.[1]
In January 1998, The Cendant Corp., a consumer conglomerate, purchased Jackson Hewitt in a deal valued at approximately $480 million.[2] In 2004, Jackson Hewitt Tax Service Inc. was spun off as a separate company.[3]
Contents |
Jackson Hewitt was founded in 1982 by former H&R Block employee John Hewitt. After working in the tax preparation industry for 13 years, he came to the conclusion that tax preparation process could be improved by using computers, and so worked with his father to design a program that streamlined the client interview process. But he was unable to sell it. As a result Hewitt and his wife went into business for themselves. The two assembled a dozen investors, purchased the six-location, Norfolk, Virginia-based Mel Jackson's Tax Service and re-named it Jackson Hewitt.[4]
For the next few years their company grew slowly, adding a handful of additional outlets.[5]
In 1986, the same year the IRS first began to experiment with computerized tax filing, Jackson Hewitt began selling franchises.[6] By the following tax season there were 22 offices. Then in October 1989 the Montgomery Ward department store chain contracted with Jackson Hewitt to open offices in 169 stores across the United States. Ward’s rival Sears had for years been host to H&R Block in its stores. Unfortunately, the sudden growth was too much for the burgeoning company to handle and so, to avoid entering bankruptcy during tax season Jackson Hewitt closed 67 of those offices. But by the end of 1990 the company had returned to profitability, however, and even opened more locations in Montgomery Ward stores.
By 1992 Jackson Hewitt had 515 offices in almost to 30 states and was preparing 311,000 returns for taxpayers per year. Making it second largest tax preparation chain in the United States. During The following year the company raised funds for expansion and moved into new headquarters in Virginia Beach, Virginia. And by 1993, the company had 900 offices in 37 states. In January 1994 went public. But no new stock was issued, and the company's 700 investors' private shares simply converted into public ones. During that same year Jackson Hewitt made a deal to set up offices in Sam's Club stores on a trial basis. The trial was a success, and later that year Jackson Hewitt launched plans to establish 18 offices in Wal-Mart stores, leasing space for use as combined tax prep and business mail service sites.
In December 1997 Jackson Hewitt announced that it was being acquired by HFS Inc. for $480 million. Before the sale was complete, HFS merged with another firm and changed its name to Cendant Corporation. Cendant owned a number of franchise operations, ranging from Ramada Inn, Days Inn, and Avis Rent-A-Car to chains like Coldwell Banker and Century 21. Under Cendant Jackson Hewitt opened a total of 1,000 new offices, and started experimenting with kiosk locations in shopping malls and offices at Century 21 real estate agencies. Following the 1999 tax season Jackson Hewitt moved its headquarters to Cendant's home base in Parsippany, New Jersey and started acquiring of independent tax preparation offices through its largest franchisee, Tax Services of America. Meanwhile, founder John Hewitt's Liberty Tax Service had grown into the third largest tax preparation chain in the United States
Starting in 2001 Jackson Hewitt began opening offices in Kmart stores. 2001 also saw the launch of several new initiatives, such as the issuance of MasterCard cash cards – so that their customers would have easier access to accelerated refund accounts – as well as the creation of a Premier Tax Service for complex returns. Some Jackson Hewitt locations began to offer ATMs where clients could cash their refund checks on-site, as well. Independent tax service acquisitions continued throughout the year, with more than 3,300 offices, owned by 600 franchisees.[7]
By year's end the company was handling 2.2 million tax returns a year.
Jackson Hewitt was the second largest tax preparation firm in the United States, Jackson Hewitt Tax Services Inc. The firm prepared some 3.4 million tax returns for low- and middle-income customers through more than 7,400 franchised company-owned offices, including locations within Kmart, Wal-Mart Stores and mall kiosks.
Jackson Hewitt maintained two business segments: its franchise operations – consisting of its franchise business and associated royalty, marketing-advertising revenue, financial product fees and other revenues and its company owned income tax return preparation offices. During 2008, Jackson Hewitt maintained company-owned offices in 28 markets across the United States and 5,763 franchised offices – responsible for preparing 87% of the total number of tax returns prepared by its network. Jackson Hewitt Inc. operates as a wholly owned subsidiary of Jackson Hewitt. Its company-owned office operations are conducted through a wholly owned subsidiary of Jackson Hewitt Tax Services Inc., Tax Services of America, Inc.
The company recently partnered with the Magic Johnson Foundation to create Community Empowerment Centers to offer comprehensive tax information seminars and financial educational resources in Sacramento, Houston, Chicago, New Orleans and Cleveland. The free seminars offer individuals in underserved communities basic tax information and budget planning resources. For instance, each attendee receives free access to the Jackson Hewitt Money Manager, a Web-based home budgeting tool that helps users create and manage a budget and a detailed savings plan.[8]
The company negotiated out of a default on its debt in May 2009 and technically defaulted for several days in May 2010 (though an agreement with creditors was announced within one week of the 'default').[9]
On May 4, 2011 the company announced it had agreed to a 20 day extension of its debt under its various credit agreements with Wachovia/Wells Fargo Bank. The company mentioned at that time that it was considering many options including a prepackaged bankruptcy filing. On Friday, May 20, 2011 the extension expired and the company had yet to file for bankruptcy protection or to announce another extension of its debt.
On May 7, 2011 Jackson Hewitt ceased being traded on the New York Stock Exchange. The ending share price was $.19. On May 9, 2011 the symbol for the stock was changed from JTX to JHTX and is being traded on a different stock exchange. On Tuesday, May 24, 2011, Jackson Hewitt officially filed for bankruptcy.[10]
Jackson Hewitt provides its customers with tax return preparation services and electronic filing. Through the use of their tax software, ProFiler, the company provides computerized federal income tax preparation, state income tax, and individual tax preparation services.
Jackson Hewitt maintains contractual arrangements with various financial institutions Santa Barbara Bank & Trust, a division of Pacific Capital Bank, N.A. (SBB&T) and HSBC Taxpayer Financial Services, Inc. (HSBC) to provide many of the financial products, including Refund Anticipation Loans, to their customers.[11] In August 2010, the Internal Revenue Service announced its intention to discontinue the provision of the debt indicator to tax return preparers. [12] The debt indicator is a significant part of the provision of refund anticipation loan funding and its lack of availability is expected to increase the cost of such products to consumers and decrease the level of their availability.
The company supports more than 5,763 franchise locations throughout the United States. Startup costs range from around $50,000 to $100,000 per franchise. Jackson Hewitt maintains a franchisee Web portal..[13]
On April 3, 2007, the United States Justice Department announced that the federal government has filed civil injunction suits alleging tax fraud by five corporations owned or partly owned by Farrukh Sohail. According to the four lawsuits filed in federal courts in Chicago, Atlanta, Detroit and Raleigh, N.C, the corporations operate under franchise agreements with Jackson Hewitt Tax Services Inc. On September 28, 2007 the Department of Justice announced that it had reached settlements with each of the defendants in the case. Under the settlement agreements the majority owner, Farrukh Sohail, of each of the businesses will be barred from preparing tax returns for five years, roughly 15 of Mr. Sohail's employees have been permanently enjoined from preparing tax returns. Neither Mr. Sohail nor his incorporated businesses will pay any financial penalties under the settlement agreement, indicating that the fraud committed was not done so with the consent of senior management in Mr. Sohail's business.
According to the complaint, Farrukh Sohail of Atlanta and other defendants "created and fostered a business environment" at the Jackson Hewitt franchises "in which fraudulent tax return preparation is encouraged and flourishes." According to court documents, examples of alleged fraud include filing false returns claiming refunds based on phony W-2 forms; using fabricated businesses and business expenses on returns to claim bogus deductions; claiming fuel tax credits in absurd amounts for customers clearly not entitled to any credits; and massive fraud related to claiming the federal Earned Income Tax Credit.
The suits allege that Farrukh Sohail wholly or partly owns each of the five corporations, and that the corporations prepared and filed more than 105,000 federal income tax returns in 2006. The five corporations allegedly operate more than 125 Jackson Hewitt retail tax preparation stores in the Chicago, Atlanta, Detroit and Raleigh-Durham, N.C., areas.
One complaint cites a Jackson Hewitt franchise customer whose Jackson Hewitt-prepared tax return stated he was a barber entitled to a fuel tax credit for buying 25,000 gallons of gasoline for off-highway business use. The complaint alleges that the customer would have had to have driven 1,370 miles (2,200 km) each day, seven days a week, to consume that much fuel in one year, leaving little if any time to cut hair.
The suits further allege that some of the Jackson Hewitt franchises' managers and employees received kickbacks from customers for helping the customers file fraudulent tax returns. The suits further allege more than $70 million in combined losses to the U.S. Treasury, and seek court orders barring the franchises and other defendants from preparing tax returns for others. "Preparing federal income tax returns based on falsehoods and fabrications is a serious violation of the law," United States Assistant Attorney General Eileen O'Connor said in a statement.
On Apr 4, 2007, Jackson Hewitt's standing rebounded on after the tax fraud investigation appeared more limited than initially feared[14]
On April 5, 2007, Jackson Hewitt Tax Services announced that it had hired Fred Goldberg, an ex-commissioner of the Internal Revenue Service, to investigate the federal allegations of massive tax fraud. "We have launched this internal review to investigate the specific allegations against one of our franchisees," Michael Lister, president and CEO of Jackson Hewitt Tax Services said in a statement.[15] The internal probe is being conducted by Fred Goldberg, a partner at the law firm Skadden, Arps, Slate, Meagher & Flom. Mr. Goldberg was IRS commissioner from 1989 to 1992. He was also chief counsel of the IRS and assistant secretary of the Treasury for tax policy.
"USA Today quotes court papers stating that at one Jackson Hewitt location, "managers frequently explain to employees that (the outlet) will lose business if [it] turns away customers suspected of providing fraudulent information [. . .] The managers therefore directed employees not to question or turn away such customers, but instead prepare and file their tax returns.".[16] Presently, IRS regulations only bar a tax preparer from preparing a tax return if they have direct knowledge that the tax return is fraudulent. Merely believing that a tax return may be fraudulent does not bar a tax preparer from preparing the return.
In June 2007, the federal government widened its probe into whether Jackson Hewitt helped customers file fraudulent returns to obtain bigger refunds, and the company acknowledged in its SEC regulatory filing that Jackson Hewitt and an unspecified number of its franchisee and company-owned stores now are being investigated by the IRS.[17]
On September 6, 2007 Jackson Hewitt said that their internal review found no evidence its employees knew of the scheme that led to U.S. Department of Justice lawsuits. The internal review led by former Internal Revenue Service Commissioner Fred Goldberg: "… did not find evidence of corporate employee participation in, or knowledge of, the allegedly fraudulent tax return preparation activities."[18]