Talk about a tax burden.
The founder of a nationwide tax prep chain was sentenced to a year and a day in prison for running a tax advance program that fleeced clients with $70 million in inflated fees.
Fesum Ogbazion of Cincinnati, Ohio, had been accused of luring customers to Instant Tax Service, its chain of 1,100 tax consulting offices across the country, with ads offering loans ahead of their expected tax refunds.
Federal prosecutors said the Dayton-based Instant Tax Service (ITS) advertised the loans as being backed by third-party lenders, even though it has no partnerships with any financial institution. Instead of paying advances, prosecutors say the company used customers' financial data from their loan applications to file tax returns, often without their consent or knowledge. The company would then collect high fees for the work.
Between 2005 and 2011, prosecutors say, the Dayton-based firm collected $70 million in such charges from hundreds of thousands of unwitting customers.
“Many hundreds of thousands of victims have (Ogbazion) placed their trust in the ITS and its nationwide publicity campaign, they had every reason to expect some level of fiduciary responsibility from the ITS. Instead, the defendant betrayed his trust, knowingly misleading ITS customers and collectively defrauding them of millions of dollars,” prosecutors wrote in a filing asking the judge to sentence Ogbazion to 15 years in prison.
Ogbazion's lawyer, Ben Dusing, wrote in court filings that his client essentially cut corners during the height of the economic crisis in 2008, when he lost access to credit and his business struggled.
"This was not the predatory plan to get rich at the expense of the poor that the government portrays," Dusing wrote.
"Much of the underlying wrongdoing occurred at the local franchise level, but the parent company that Mr. Ogbazion ran collected some of those fees," Dusing said in an interview.
The investigation goes back to 2007
The IRS and other agencies began investigating some Instant Tax Service franchises as early as 2007. In 2013, a federal judge signed an injunction ordering ITS to cease operations because federal prosecutors were ready to press charges against the company and Ogbazion. At that time, the company described itself as the fourth largest tax consultant in the country.
In 2015, Ogbazion and company vice president Kyle Wade were indicted on multiple counts of wire fraud, money laundering and bank fraud. They were also charged with tax evasion for failing to pay their employees' payroll taxes for several quarters. Wade later pleaded guilty to obstructing IRS rules.
Ogbazion was found guilty by a 2017 jury of tax evasion, willful failure to withhold and pay payroll taxes, wire fraud, conspiracy to commit wire fraud and bank fraud. After the trial, the court dismissed five counts of wire fraud but allowed the conviction to stand on conspiracy to commit wire fraud and other charges.
Once a classic immigrant story
Ogbazion's lawyer wrote in court documents that his client once represented the classic immigrant success story. He said Ogbazion was born the son of a shepherd in rural Ethiopia and moved to the United States with his family as a child with the help of missionaries.
When he was in college, Ogbazion learned that the IRS would allow taxpayers to file tax returns electronically, and he pooled as much money as he could to start a tax prep business. In 1999, he sold his original business, which had grown to dozens of offices, to accounting firm Jackson Hewitt for $3 million. According to court records, he then used the proceeds to build ITS.
Since ITS closed in 2013, Ogbazion has started a small moving company in Ohio that he hopes to grow further.
"He has attempted to start his life over in a different business and is ready to be a productive member of society again," his attorney said.