What was the primary assertion in the complaint against Liberty Tax Service, an affiliate of Ledgers?
Ledgers Franchise · 2025 FDDAnswer from 2025 FDD Document
United States of America v. Franchise Group Intermediate L 1, LLC d/b/a Liberty Tax Service, (Case No. 2:19-cv-00653-RAJ-DEM) filed on or around December 3, 2019 in the United States District Court for the Eastern District of Virginia. The Department of Justice (DOJ) filed a complaint asserting that Liberty Tax failed to maintain adequate controls over the tax returns prepared by its franchisees and failed to take steps to prevent the filing of potentially false or fraudulent returns prepared by its franchises despite notice of fraud at some of its franchisee stores. The primary focus of the DOJ's investigation that preceded the complaint related to the alleged operational wrongdoing of 12 franchisees. Also on December 3, 2019, the DOJ and Liberty Tax filed a joint motion asking the court to approve a proposed settlement order setting forth certain enhancements to the Liberty Tax service compliance program and requiring Liberty Tax to retain an independent monitor to oversee the implementation of the required enhancements to the compliance program; and work with Liberty Tax to make further enhancements to improve the
compliance program. As part of the proposed order, Liberty Tax agreed not to rehire John T. Hewitt, under whose supervision the alleged conduct at issue occurred. Liberty Tax further agreed not to grant John T. Hewitt any options or other rights to acquire equity in Liberty Tax or to nominate him to the company's board of directors. On December 20, 2019, the court granted the joint motion and the motion to seal, which fully resolved the legal proceedings initiated by the DOJ. Although he is referenced in the court's order, John T. Hewitt was not a named party to this case.
Source: Item 3 — LITIGATION (FDD pages 11–16)
What This Means (2025 FDD)
According to Ledgers' 2025 Franchise Disclosure Document, the Department of Justice (DOJ) filed a complaint against Liberty Tax Service, asserting that Liberty Tax failed to maintain adequate controls over the tax returns prepared by its franchisees. The DOJ also claimed that Liberty Tax did not take sufficient steps to prevent the filing of potentially false or fraudulent returns, even after receiving notice of fraud at some franchisee locations. The investigation that preceded the complaint primarily focused on the alleged operational wrongdoing of 12 franchisees.
To resolve the matter, the DOJ and Liberty Tax filed a joint motion requesting court approval for a proposed settlement order. This order outlined enhancements to Liberty Tax's compliance program and required the company to retain an independent monitor. The monitor's role was to oversee the implementation of these enhancements and collaborate with Liberty Tax to further improve the compliance program. As part of the settlement, Liberty Tax agreed not to rehire John T. Hewitt, who was in a supervisory role during the period of the alleged misconduct. Additionally, Liberty Tax agreed not to grant Hewitt any options or rights to acquire equity in the company or nominate him to the board of directors.
The court approved the joint motion, fully resolving the legal proceedings initiated by the DOJ. It is important to note that while John T. Hewitt was referenced in the court's order, he was not a named party in the case. This resolution indicates the importance of franchisees adhering to compliance standards and the potential legal and financial repercussions for failing to do so. A prospective Ledgers franchisee should be aware of the compliance standards and the potential risks of not adhering to them.