Liberty Tax Franchise Owner, Employees Allegedly Filed Fraudulent Returns, Pocketed Refund Money

Nine Liberty Tax franchisee employees were indicted this week on tax fraud charges.

The indictment was reached by a grand jury following an investigation led by Attorney General Brian Frosh. Lateisha Vanessa Kone, a Baltimore woman who owned Liberty Tax Service franchises, and eight of her employees face felony and misdemeanor charges related to tax fraud.

A number of Liberty Tax locations have been the target of orders issued by Comptroller Peter Franchot halting the processing of electronic returns. In a statement Friday, Franchot said the indictments send a "clear, serious message."

“The nine individuals charged today not only violated our laws, they also violated the trust placed in them by their clients," Franchot said. "The ringleader and her associates targeted the most vulnerable – the homeless, disabled, drug addicts, and poor people already gasping for stability. They lured victims by paying them $50, then submitted false tax returns to make a profit with disregard to the consequence to their clients."

In halting the processing of returns from suspect locations over the last few months, Franchot's office said returns were raising key red flags. Taxpayers would report business income despite not owning a business. Refund amounts requested were much higher than previous years. Business expenses weren't documented. Dependents were claimed when the taxpayers didn't provide the required minimum 50 percent support. Some taxpayers would inflate wages and withhold income information.

“The unfortunate reality is that Ms. Kone and her criminal associates are a mere handful of the many who commit tax fraud and identity theft on a daily basis. Tax fraud takes a growing toll on all Maryland taxpayers," Franchot said. "Fraudulent refunds come out of all of our wallets. These financial predators preyed on the poor, but all taxpayers are at risk here."

Tax preparers would create returns that maximized the earned income tax credit the applicant could receive and gave the highest refund without Social Security or Medicare taxes being withheld.

The earned income tax credit pays money to qualifying poor people. Liberty Tax kept the majority of it.

According to charging documents, the bogus filers would typically appear to be eligible for a $620 combined state and federal tax return, and Liberty Tax would keep more than $400 of it. Authorities say the scheme was perpetrated more than 1,100 times between Jan. 1 and Feb. 21 of 2015.

A release from Frosh's office says the investigation began after the Internal Revenue Service received complaints from Liberty Tax Service, Kone's national franchiser, and flagged the returns as suspicious.

The suspects have been charged with conspiracy to steal over $100,000 from the State of Maryland, conspiracy to prepare false income tax returns and preparing false tax returns.

The tax charges carry up to five years in prison and a $10,000 fine, while the theft charges carry up to 25 years in jail and a $100,000 fine.

The charges against Kone were filed in Baltimore City Circuit Court. Online court records do not say if she has yet been taken into custody.

The Associated Press contributed to this report.