What specific failures did the Department of Justice allege against Liberty Tax Service franchisees, an affiliate of Ledgers?
Ledgers Franchise · 2025 FDDAnswer from 2025 FDD Document
ions against Unrelated Entities:**
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.
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, an affiliate of Ledgers, alleging failures in maintaining adequate controls over tax returns prepared by its franchisees. The DOJ claimed that Liberty Tax did not take sufficient steps to prevent the filing of potentially false or fraudulent returns by its franchisees, even after receiving notice of fraud at some locations. The DOJ's investigation primarily focused on the alleged operational wrongdoing of 12 Liberty Tax franchisees.
To resolve the DOJ's concerns, Liberty Tax agreed to enhance its compliance program and retain an independent monitor to oversee the implementation of these enhancements. Additionally, as part of the settlement, Liberty Tax agreed not to rehire John T. Hewitt, who was CEO during the period of the alleged misconduct. Hewitt was also barred from acquiring equity in Liberty Tax or being nominated to its board of directors. The court approved the settlement order on December 20, 2019, fully resolving the legal proceedings initiated by the DOJ.
This litigation indicates potential risks for prospective Ledgers franchisees, as it highlights the importance of compliance and oversight in franchise operations. Although the case specifically involves Liberty Tax Service, it underscores the need for franchisees to adhere to legal and ethical standards in their business practices. Prospective franchisees should carefully evaluate Ledgers' compliance programs and training to ensure they are adequately prepared to meet these standards and avoid similar issues.