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LIBERTY TAX SERVICE Franchise Complaints

August 11, 2009

UnhappyFranchisee.com asked: Are LIBERTY TAX SERVICE Franchise Owners Happy? If you’re familiarliberty_logo with the Liberty Tax franchise, please share a comment below.

Entrepreneur magazine has ranked the Liberty Tax Service franchise #3 behind  McDonald’s & Subway.  However, some commenters who claimed to be former Liberty Tax franchisees left stern warnings on the Franchise-chat forum.

BostonTax wrote:

I’m a former Liberty Tax Franchisee

I hope you are ready for a little enlightenment! I held a successful Liberty Tax Franchise for 5 years until I decided to let the franchise agreement lapse. I did this for a few reasons:
1. The royalty fees were outrageous! 14% went to normal royalty while and ADDITIONAL 5% went for so called advertising royalties. The ad royalties were supposed to be put back into your local market to build the brand name. This was never done! All advertising in addition to the ad royalty I had to pay for because it did not fit into Liberty’s concept of advertising. I don’t know exactly what the concept was because our AD could not give an answer and the approved methods changed by the week.
2. Corporate was totally unresponsive to the needs of the franchisees. The AD system is designed to recruit anyone who can write a check for 100K. No other skills or ability required.
3. The minute you are behind in a royalty payment, they send you a notice to cure. After that, if you don’tpay, they try to terminate your franchise agreement.
4. Upon termination, Liberty enforces through legal proceeding a 2 year, 25 mile radis non compete clause that is in the franchise agreement. This is enforceable in the Eastern Division of the Federal District court, where, at least 2 Liberty friendly judges preside.
5. Liberty does not recognize chargebacks for bad debts as an adjustment for your royalty fees. All royalties are based on your gross, not your net collectable. This was an ongoing issue with them and the accounting department did not have the ability or the inclination to resolve!
My best advice is do not go with these guys, they are bad news. If you like to have people collect royalties and provide no support, then this is the franchise for you! It is very expensive to get into, the initial fee is around $32K just to buy the territory plus those pesky royalties. You can’t make money on this concept.

Most of the surviving franchisees I’ve talked to in the last 2 years have experienced great difficulty not only in making a profit, but in the corporate support or lack thereof.Remember, 19% of your gross is getting kicked back to Liberty, which is excessive by any standards. Please do yourself a favor and call former franchisees ,those that are currently getting sued (they are very likely to talk, as I found out), and current ones to try to get the straight poop.

Barbara Green wrote:

I too was a Liberty Tax Franchisee and I agree with everything you said.

The only reason for purchasing any franchise is because the business model is a proven marketing success as evidenced by the profitable franchisees. That is why you pay a license fee of $25,000. Being profitable is not in the cards for a Liberty Tax franchisee. Liberty Tax’s market/ business model is aimed at individuals who have very simple tax returns, i.e one W-2 and standard deduction which is why they were very successful in Norfolk, Va. That market is full of military people with one w-2.

Liberty will sell anyone a franchise at any location, in any georgraphic area, even if there is not a chance in hell of the franchisee being successful.

At one time, I too owned a Liberty Tax Franchise for one tax season. It was only one season because of the behavior of the Regional Manager who called me on January 15th demanding and screaming “Why had I not generated 200 tax returns and that maybe this business was not for me. I was stunned and confused since employers are given until January 31st. to give w-2’s to employees. Apparently, he thought that I was in Norfolk, Va. where that is possible.

It only goes downhill from there. The bottom line is I lost all of my investment in this businees (approx. $80,000) because I closed it rather than becoming a victim of this unethical company. NOthing would make me happier than to be a part of a class action lawsuit.

WHAT DO YOU THINK?  DO YOU OR HAVE YOU OWNED A LIBERTY TAX SERVICE FRANCHISE?  ARE LIBERTY TAX SERVICE FRANCHISEES HAPPY?  WHY OR WHY NOT?

Comments

4,422 Responses to “LIBERTY TAX SERVICE Franchise Complaints”

  1. SaraEA says:

    I just realized we are all working from the wrong premises here. Sad but true stated, “The IRS reported Tax Professional e-files increased 72,000 thru 4/17, or a small .1% increase from 2014. The self-prepared e-filings increased 2.725 million thru 4/17, or a 5.9% increase from 2014. The trend is more taxpayers are filing their own returns.” The statistics do not support the last sentence.

    These IRS published stats only show the growth in EFILED returns. Of course paid preparers had a miniscule growth from the previous tax season because they have been mandated to efile for a few years now. That .1% doesn’t reflect the number of returns DONE by paid preparers but the number EFILED by paid preparers. In other words, a few who still clung to paper and pencil or used software but had their clients mail in paper returns changed their ways. The numbers only show that self-prepared filers are turning to software and efile instead of paper returns, not that more of them are doing their own returns.

    The IRS used to publish stats on the numbers of returns completed by paid preparers, but I haven’t seen those for awhile. The Taxpayer Advocate’s annual reports still cite around 60% of taxpayers use paid professionals, but I seem to recall the percentage has dropped a bit over time. It’s hard to get a handle on when millions of fraudulent returns (all “self-prepared”) are being filed by identity thieves each year. How much of that 5.9% increase is due to fake returns?

    That said, I do believe that more people are trying to prepare their own returns. A major reason is that the cost of tax prep at the chains has chased them away. If someone will mow and trim your big lawn for $60 a week, you might hire him because it will save you 4-5 hours plus gas, maintenance for the mower, etc. If he instead wants $200 a week, you’ll find the time to do it yourself.

  2. Sad but true says:

    SaraEA, you are assuming that more paper returns are done by paid preparers? I would say that many paper returns are either old school taxpayers (doing their own returns) that have 1040EZ, 1040A, or 1040’s with a simple Schedule A or paid preparers that are required to mail in the return due to some reason they cannot be efiled.

    Paid preparer efile’s were 60.4% of all efile returns in 2014. Paid preparer efile’s were 59.1% of all efile returns in 2015. That is a drop of 1.3%. I believe we will continue to see this trend continue. Not sure where the VITA returns end up and they may be in the 16,326,000 amount that are total receipts greater than efiled returns. Total receipts, as of 5/2/2015 are up 687,000 from 2014. Total processed are up 666,000 from 2014.

    As younger taxpayers enter the job force, these taxpayers are computer literate and will take time to search the internet for answers they may need to file their individual returns. 1040EZ’s, 1040A’s or 1040’s with a simple Schedule A will more and more be done by the taxpayer, online. These were the franchise operations gravy customers; in and out and they made a quick buck. This customer is most likely a major share of the 1.3% drop in efiles by paid preparers over self-preparers.

    We will see what happens next year. Not sure how immigration reform will impact all of this but I would guess the paid preparers would benefit from any reform that increases new taxpayers from that potential market.

  3. Up Hill Battle says:

    Thank you everyone for your information.

    Also, immigration reform will increase the demand for preparers because the immigrants will have to be up to date with their taxes. Also, if the tax credits are made available to the immigrants (and retroactive for three years), then many people are going to amend their returns.

    Do not forget that the strict tax preparer regulations are coming. There will be a trifecta of regulations in some areas (city, state, and federal).

  4. SaraEA says:

    Sad but true, I am NOT assuming more paper returns are done by paid preparers. On the contrary, paid preparers who file 11 or more series 1040 returns are MANDATED to efile and have been since 2012. That is why the GROWTH in efiled returns by paid preparers is so small–likely 99% of them efile already. The statistics you cite show that among taxpayers who prepare their own returns, 5.9% more than last season efiled instead of sent in paper returns. It does not mean that 5.9% more did their own returns, only that more self-prepared returns were efiled. See the difference?

    As an analogy, say two towns of 100 households each are compared on participation in recycling. In one town 100% of the residents use their recycle bins. In the next year their participation growth will be zero percent because they can’t grow anymore. In the second town no one recycles. The next year 10 people decide to participate. Their growth rate is 10%. Same with efiled returns. Almost all paid preparers efile so can’t grow their participation much, while self-prepareds are increasingly getting on board.

    As I said, the more meaningful statistic is how many returns were done by paid preparers vs. how many were self-prepared. The efile stats do not address that difference. I do agree that Liberty’s target population of lower-income taxpayers are the ones most likely to switch to free preparation places or do it themselves. Unless Liberty does something to attract a different client base they aren’t going to have one.

  5. Sad but true says:

    SaraEA, thanks for the explanation, I see what you are saying.

    What is interesting is that many paper return filers transitioned to efiling their own returns. They bypassed the big three franchise operations and did them on their own. That is bad news for Liberty, the bottom feeder of the three big tax prep businesses. Block’s loss of client’s is surprising because they had a good promo, the 50% off last years fee, after first peak.

    Liberty needs to replace the franchisees that will be discontinuing their operations with them. What sales line they make, now that ACA was a flop, should be interesting. Anyone thinking about buying a tax franchise territory should consider what happened this past year and what the future trend will be. Now is not a good time to get into this business as a franchisee.

  6. guest2 says:

    Block promotion did’nt work because it was’nt good for their franchisees or their existing customers. I’m wondering how you spend time on the new customer with the 1/2 off and not make the existing customer angry.There is lots of price sensitivity.

    I agree, you are right, this is not a good time to get into this business as either a franchisee or an independant if you don’t have any background or expertise.

    ACA issues are still coming up because about 2 weeks ago, the IRS started sending out letters to people who did’nt complete their returns correctly. Those customers are calling their preparers over the last 2 weeks, or anyone who will answer the phone.

    ACA is’nt even close to being over. Those are the first letters, the second letter will probably come in June.

  7. SanFranDan says:

    ^^^Up Hill Battle:

    Stricter tax preparer regulations are awesome. It has to be. Right now Liberty will sell to anyone with a wallet. In the future they will have to be more selective. (Awww) It’s about time! :) Great news on the city, state and federal levels too.

    The RAL’s are gone. So is Liberty’s opportunity to go after only the poorer communities. The only people that will survive are the ones with the strongest Tax backgrounds. (IF they even want to stay & associate themselves with this pigsty of a company)

    Because of Liberty’s record of fraud and suing current and ex-franchisees, I hope that they get bashed and get a little taste of their own medicine by more & more cases as the one in S.C.

    Anyone thinking about joining this hair brained company that can read through these 4000 posts can see that many, many good, honest, hard working people paid good money to this franchise and were not only squelched, but steam rolled over in sleazy marketing tactics taught to them by the King of Tax himself. Don’t fool yourself to think that this company will help you achieve your goals. People with plenty of Tax experience have been raked over the coals and scammed. AND WORSE.

  8. SanFranDan says:

    ^^^Up Hill Battle:

    Stricter tax preparer regulations are awesome. It has to be. Right now Liberty will sell to anyone with a wallet. In the future they will have to be more selective. (Awww) It’s about time! :) Great news on the city, state and federal levels too.

    The RAL’s are gone. So is Liberty’s opportunity to go after only the poorer communities. The only people that will survive are the ones with the strongest Tax backgrounds. (IF they even want to stay & associate themselves with this pigsty of a company)

    Because of Liberty’s record of fraud and suing current and ex-franchisees, I hope that they get bashed and get a little taste of their own medicine by more & more cases as the one in S.C.

    Anyone thinking about joining this hair brained company that can read through these 4000 posts can see that many, many good, honest, hard working people paid good money to this franchise and were not only squelched, but steam rolled over in sleazy marketing tactics taught to them by the King of Tax himself. Don’t fool yourself to think that this company will help you achieve your goals. People with plenty of Tax experience have been raked over the coals and scammed. AND WORSE.

  9. Frustrated and Disgusted says:

    I spent a few days up in NY and NJ this week. Every Liberty I saw was either closed or the store front was For Rent. One was an old house with grass growing so high it was clearly abandoned. I saw at least 6 locations, all gone. I think the future for this organization is pretty bad. Betting that they will see massive drop in locations next year.

  10. Sad but true says:

    I would have to believe that with the very small growth in storefront returns that the majority of the franchisees in years 1 to 5 are in trouble.

    Liberty Corp. can lose franchisees down to their break even point. They can then downsize and hope things turn around. If they fail to gain new franchisees, their reputation will take a big hit.

  11. Up Hill Battle says:

    San Fran Dan, I am looking towards the regulations, I am already in compliance.

    I have learned a lot from this website.

    Also, I am looking for a building to set up my practice for next year.

    I just made a contribution to this site. So, please if you have benefitted from this forum, then please contribute to keep this source alive and well.

    Thank you everyone.

  12. texastee says:

    When a business plan is based on failure, such as Liberty’s, there is bound to be many franchisees and shareholders being left to take on the debt burden of its failure. This is the fundamental theory behind Hewitts method of extracting as much money from the franchisees as he can. Liberty is not in the tax business, they are in the franchise business. You know this to be true since anyone with enough money can buy into this racket. You don’t need skill. You don’t need knowledge, You don’t need experience. You only have to have the ability to line the pockets of Liberty Tax through huge fees and royalties. With the increasing complication of preparing your taxes, considering new incentives by which way the wind blows in Congress, you cannot expect some limited intelligence individual to prepare a tax return. A lot of CPA’s are quite reluctant to expand their practices for tax because of the increased risks associated with preparation. There is no more easy money in this business as Liberty and others will try to sell to an unwary investor. The world has changed, but the Liberty business model hasn’t.

  13. cnj bookkeeping says:

    We bought a franchise 3 tax seasons ago and after this season we want out. We have had very little training or support. Our office is 75 miles from our home because we were not told of an available territory near our home. So we had to buy a condo near the office.
    Does anyone understand the contract for terminating the contract before the 5 years are up. Due to the distance of driving my health is very poor.
    Any suggestions out there.

  14. Franchizee says:

    cnj bookkeeping –

    When I had our contract, as long as you were up on your royalties and mainly your lease is up, you could walk away, by sending them a letter of your intent. They will in turn send you an agreement to sign, can’t think of the name right now. Once signed, then you are able to walk away. Now they may have changed their franchise agreement’s since then, but as long as you are current you can walk away. You cannot do any taxes within a 25 mile radius, unless they have changed that in a new contract.

    Make sure you have everything paid off and you won’t hear from them again.

  15. Mike says:

    Cnj…now you can open an office where you live!

  16. Out and glad says:

    CNJ, I have a couple of questions.
    1. After 3 years, were you making money from your location?
    2. Did you take over an existing territory, or was it a new territory?
    3. Can you tell us how many offices and returns you completed last year?

    The reason I ask this is I want to, is to look at the thought process.
    They could have sold you the territory that far away, so you spend the money developing the territory. They can this resell it for a higher price if you leave.
    Or if you were doing well, and had drank the koolaid, it would be easier to sell you the local territory.

  17. bill says:

    According to Liberty’s website their office count was 3890 this past tax season a decline of 313 offices. Of course these are Liberty’s numbers so you know there is
    built in fluff. One example is in NJ they list 2 offices in Vineland NJ. When you click on the City you find the address for the two offices are 703 and 705 Landis Ave.

    CNJ: thank you for sharing your experience. Wishing you the best.

  18. CNJ says:

    Thank you for your answers.

    1. We have made nothing at this. When we started the business it was Dec 2012. I asked over and over if we could wait until the following year due to late season start, no employees, distance and was told via emails we would have plenty of support and help. Did not happen. The 8 hour training in the contract was 2.25 hours from our AD.
    2. The area was new. In a medium to high income area.
    3. The royalties we have paid is way over our returns. To date about 60 returns. Area we are in has been under construction for 2 years.
    4. We have just the one office.
    We have an attorney working on getting us out of this.

  19. CNJ says:

    The training was so poor that after taking about 40 minutes trying to figure out how to get on “Zeenet” I had to call the AD and ask how. Was then told it is http://www.Libertytax.net.

    We called Corp and gave them an ear full then emailed Corp and told them we want out that this is a disaster and no training. We had the AD call and come meet us and assured us we would get plenty of help and support. Did not happen.

  20. texastee says:

    CNJ:

    Sounds like an opportunity to sue them for fraud. I hope you have documentation regarding this action. You will have to sue Liberty for a change of venue away from the VA courts. Argue about your health being a factor. Have you thought about a chapter 11 bankruptcy? That could also force a change in venue to a court nearer to your home. That would make it more costly for liberty to litigate. They love to litigate as long as it is in a friendly VA courtroom. Good Luck.

  21. Out and glad says:

    The annual spin doctors will be starting on Thursday. The next Convention starts. I would love to hear the garbage.

  22. bill says:

    CNJ: I hope you continue to post here and tell your store. While all of us share the same experiences it is important that (unfortunately) current franchisees collaborate what has been stated on this site. The goal of all of us is to see this pariah of a company out of business.

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