The city attorney for San Francisco is suing an Oakland-based tax preparation company over allegations it systematically swindled low-income residents out of their tax refunds.
Instant Tax Service franchisee Kebron Daniel is suspected of engaging in tax preparation and loan-making schemes that routinely skimmed money from victims’ tax refunds and gouged them with exorbitant fees, according to the San Francisco City Attorney’s office.
Daniel does business as a franchisee of Instant Tax Service. That company’s parent company, ITS Financial LLC, was permanently shut down by a federal court in Ohio last year for fraudulent practices, according to a 16-page civil complaint filed Thursday in San Francisco County Superior Court.
ITS Financial LLC was once the nation’s fourth-largest tax preparation, the complaint reads. It was shut down after evidence surfaced that ITS Financial targeted low-income residents who generally “need their money quickly for urgent needs like rent, electricity, or outstanding bills.”
For at least the past few years, Daniel ran a seasonal Instant Tax business out of check-cashing outlets, where he preyed on low-income residents who needed a quick return on their tax refunds, city attorney’s office officials said.
Not confined to Oakland, Instant Tax had locations in San Francisco, Los Angeles, San Diego, Antioch, Carmichael, Compton, Hayward, Inglewood and Martinez.
The tax preparation and loan-making scheme appears to target working families who are eligible for the Earned Income Tax Credit. Taxpayers would hire Daniel’s company to complete and file their tax returns electronically, officials said.
Daniel’s company would then withhold large, undisclosed portions of the refund before giving customers the balance, if any.
“There may be a special place in Hell for those who rob low-income families, but until then I’m grateful for tough consumer protection laws that allow us to aggressively pursue wrongdoers like Kebron Daniel for every dollar he’s defrauded from taxpayers,” City Attorney Dennis Herrera said in a statement.
One San Francisco taxpayer agreed to have Instant Tax prepare and electronically submit her federal tax return in exchange for a $100 loan and the deduction of a $400 fee from her refund, according to the complaint.
Without her knowing or agreeing, Instant Tax directed the IRS to deposit her refund into an account controlled by the company and then deducted $1,293.95 before presenting the remaining funds to the taxpayer as her “refund.”
Only after contacting the IRS did the woman discover that her tax refund had been $4,380, but she only received $3,086, according to the complaint.
In another instance, a taxpayer went to Instant Tax for a $50 “instant loan.” The tax service filed her taxes and eventually gave her a “refund” check for approximately $1,600.
When the taxpayer contacted the IRS, she discovered her true refund was approximately $6,000 and Instant Tax had charged her $1,500 for the $50 loan and taken the remainder of her refund.
Matt Dorsey, a spokesman for the San Francisco City Attorney’s office, said they do not yet know how many people were victimized in the scheme.
“Our investigation has revealed clearly fraudulent patterns among the victims we’ve been able to identify,” Dorsey said, “but we suspect there may be large numbers of Kebron Daniel’s Instant Tax customers who aren’t even aware of the fact that they were similarly victimized.”
City attorney’s office officials said reporters in KTVU-TV 2 Investigates’ team initially tipped him off to Daniel’s scheme.
“Even in the context of the hundreds of cases my office has taken on to fight wage and benefit theft, arbitration fraud, payday lender scams and more, this company’s extortionate greed is breathtaking,” Herrera said in his statement. “It’s an illegal business that preys on low-income families, robbing them of the modest tax credit federal law authorizes to improve their means.”
If the lawsuit is successful, it could secure a court order requiring Daniel and his company to fully restore the funds stolen from his customers, pay $2,500 in civil penalties for each unlawful act, pay the cost of the city’s lawsuit, and be permanently prohibited from engaging in further unlawful acts.
“I hope this action sends a strong warning to those who would ever consider engaging in similar fraudulent practices, and that it also serves as a cautionary reminder to all taxpayers to be vigilant in seeking tax preparation services with integrity,” Herrera said.
There are legitimate resources available to consumers seeking reputable tax preparation services, including the IRS’s Volunteer Income Assistance program, which provides free tax help to anyone earning under $53,000 annually.
For more information about the volunteer service, visit http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers. For information and tips on how to chose a tax preparation service, visit http://www.irs.gov/uac/Newsroom/IRS-Offers-Advice-on-How-to-Choose-a-Tax-Preparer.
Erin Baldassari, Bay City News