Feds succeed in shutting down Columbia-area Liberty Tax franchisee
Thanks to a dizzying array of practices that left a years-long trail of audits, fraud, and customer-deceit in its wake, Irmo businessman Christopher Paul Haynes on Thursday was permanently barred by the federal government from ever preparing federal tax returns again.
Haynes is the owner of three Liberty Tax franchise offices in Columbia, acquiring his first one in 2005. U.S. Government officials alleged Haynes and his employees are directly responsible for a pattern of fraudulent and deceptive practices that bilked the U.S. Treasury of tax receipts over the course of several years and caused “well over 200” of his clients to be audited by the Internal Revenue Service.
“The scope of misconduct at Haynes’s Liberty Tax Service offices is longstanding,” according to the government.
Under the order agreed upon in federal court in Columbia by Haynes and the government, Haynes is forever prohibited from acting as a federal tax-return preparer and from supervising, managing, or employing federal tax-return preparers.
In addition, Haynes must provide the government with a list of all his customers since the 2010 tax year. Government officials have said most customers were unwitting victims, though a number helped perpetrate Haynes’ fraud with the promise of large refunds.
In many cases, customers were not aware of the fraud until they were audited because they didn’t receive a copy of their return as required by law unless they paid an extra fee of between $25 to $50.
The only concession granted to Haynes was the right to sell his three businesses — at 2700 Broad River Road, 4058 West Beltline Road, and 599 St. Andrews Road. He has just 153 days to do so, however, and is prohibited from selling it to any past or present business associates, employees, or family members.
Thursday’s injunction order stems from a suit the government filed Feb. 8 against Haynes, alleging he and his employees prepared false federal income tax returns in order to increase customers’ refunds.
Liberty Tax is the nation’s third-largest tax preparation chain and is widely known for its marketing gimmick of hiring people during tax season to wear Statue of Liberty costumes and to dance and wave along roadways and at intersections near their outlets to drum up business.
In Haynes’s case, his three franchises catered to low- and moderate-income clients, whom the government claimed were “unsophisticated about tax matters” and easily duped by Haynes and his employees.
Government officials also noted that neither Haynes nor his employees were experts at preparing returns. Employees were hired “with no experience required” and received minimal training or guidance but were taught tactics to maximize profits.
Haynes, meantime, had no tax return preparation experience or training before acquiring his first franchise, and the only tax return he had ever prepared was his own personal income tax return.
“He is not an attorney, Certified Public Accountant or Enrolled Agent,” government officials noted. “Prior to 2005, Haynes worked as a sales representative, network engineer, and sales manager.”
According to the feds, Haynes and his employees prepared tax returns that included outright lies and fabrications, such as false or inflated Schedule C (Profit or Loss From Business) income and expenses, bogus dependents, false filing statuses, and improper un-reimbursed employee business expenses.
In many cases, the complaint alleged, the false statements “purported to allow the customer to qualify for a larger Earned Income Tax Credit and receive inflated tax refunds from the Internal Revenue Service (IRS).”
Government officials said Haynes’s Liberty Tax Service offices have prepared more than 9,700 federal income tax returns since 2010. Based on a sampling of tax returns prepared and filed by Haynes’s Liberty Tax Service offices for 2010 to 2013, 96 percent contained deficiencies that required IRS adjustments.
The IRS calculated the average tax deficiency per return to be approximately $3,834, for a total tax underpayment of more than $700,000 just on those returns analyzed.
The complaint also stated Haynes did not report to the IRS the wages he paid some of his employees, even though the report is required by law. Haynes also failed to withhold and pay the IRS federal employment taxes for those same employees.
The suit said that Haynes and his employees continued to break the law despite numerous warning letters from the IRS over a period of several years.
Officials said the inflated returns were one way to mollify customers who were charged extremely high fees for preparing their returns. Customers were required to pay a fee for each form or schedule used in the preparation of their returns, with total costs often exceeding $600 per return.
Further, with most seasonal employees being paid just minimum wage or slightly above that threshold, they were encouraged to prepare the greatest number of returns possible, at the highest fees possible, in order to earn monetary bonuses.