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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

5,069 Responses to “LIBERTY TAX SERVICE Franchise Complaints”

  1. T.EA says:

    Mwangi – gullible is not the same as making money the whole retail industry not just retail tax is hurting bad Macy’s announced a 100 stores are closing today.

  2. SaraEA says:

    TEA, the reason retail is hurting is that there is too much retail! Any metro area has malls and strip malls selling clothes and shoes and groceries and fast food. I live in a somewhat rural area where everything is 10 miles away. Yet drive 15 miles in any direction and I probably have a choice of 50 shoe stores. And 100 stores selling shoes and clothes. And 100 places to eat. They can’t all survive because I and my neighbors only have two feet each and can only eat so much.

    Same with retail tax prep. HRB used to be the only game in town until lucrative fast refunds came into being. JH and then Liberty opened stores within spitting distance of HRB locations to share in the wealth. Just like I only have two feet and only need so many shoes, people only file one tax return (hopefully) and don’t really need 15 nearby locations to choose from. Some of them have to go under simply because there are too many of them. Only the fittest will survive.

    For what it’s worth, I work in a CPA office and we don’t take many new clients. When I meet with one and see EITC, I refer them to HRB. Their preparers are way better trained than I am to deal with those complexities. I have never referred anyone to Liberty because their reputation is so bad. Prospective franchisees might want to read this paragraph again.

  3. T.EA says:

    SaraEA, I agree with you to much supply for the amount of demand in retail. Only the strong will survive my question is how bad will it get before they (LTS) start to fall is the million dollar question.

  4. guest says:

    SaraEA and TEA it’s starting to look like all need a strategy for the next couple years. But I think we forget that about 65% of paid tax prep with mom and pops. I bet it won’t change much. Just consolidation.
    It will be interesting if HR Block, JH, or Liberty get sold. Could happen. There is some speculation on Seeking Alpha about HRB. Maybe Liberty and JH will merge?
    HRB stock down about 30%. Liberty stock also down.

    I agree, too many stores, but only the strong will survive the next couple years. Sale of the companies will only make the shareholders richer. Does’nt help store owners.

  5. Bairste says:

    SaraEA, you can send the EITC my way as well. I provide more superior service to HRB anyday.

  6. SaraEA says:

    Guest, here’s a strategy: Competent, well-trained employees who behave like professionals. Pay them enough that they will return year after year so clients can develop relationships with “their” tax pro. Year-round service is a must. Over the years we added many new clients during the off-season because the place where they had their return prepared was closed when the IRS letter arrived, they lost a job or got a big raise, etc. Oh yea, charge fees that are reasonable for the amount of work the return entails. A little more if there is risk of preparer penalties for things like EITC and Schedule C. (For example, we add $25 to the cost for EITC, not $250.)

    Strategy sound familiar? It should. This is the way most independent tax preparation businesses are run. It was HRB’s model before EITC and rapid refunds corrupted their founding approach. Liberty never had this model so I’m not sure it could adapt.

  7. T.EA says:

    http://www.accountingtoday.com/news/tax-practice/tax-fraud-blotter-bipartisan-fraud-78947-1.html

    “Baltimore: Lateisha Kone has agreed to an injunction permanently barring her from preparing federal returns for others or from owning, operating or profiting from a tax prep firm, according to published reports.

    Though she agreed to the order’s entry, Kone didn’t admit to the claims against her, reports added.

    Authorities reportedly said that Kone and her employees at six Liberty Tax Service franchises filed returns that, among other things, had false business profit or loss information and intentionally omitted W­-2 and Social Security income. In all, 1,222 returns reported fictitious household help income, news outlets added.

    Kone then reportedly kept each refund as a preparation fee and gave each customer a $50 cash payment as part of a Liberty Tax promotion.”

  8. Bill says:

    I looked up the article in accounting today just to make sure what I was reading was correct. Here the franchisee not only made up the returns, but kept the refunds. If Liberty turned them in it was because they were upset they were only getting 19% of the net fee.

    Everyone of us knows how well Liberty tracks their franchisees, they monitor their return counts, there net fees etc. But somehow they can plead ignorance when it comes to these rogue franchisees. Even when their collecting 19% of the net fees from these fraudulent returns.

    It just doesn’t make sense to me why the IRS hasn’t done anything. There might not be as much blatant abuse by Liberty compared to the Instant Tax Case but there certainly enough evidence that the company by it’s silence encourages a culture of tax abuse. Just look at the numerous documented case of Liberty Tax Franchisees found to be filing fraudulent tax returns.

    Buyer Beware!!!

  9. Guest says:

    You seem to be wishing innocent, law abiding franchisees to pay for law breakers who know what they are doing. Ms. Kone is old news. Her case may come up again, but it’s old news. The company has probably had reviews, but thousands of people franchise. We are not all crooks and criminals.

  10. T.EA says:

    Guest by no means but I do question the ethics and morals of someone who would not take meaningful action to distance them selves from such a tainted name. Would you open a “Madoff Investments” location. “It takes many good deeds to build a good reputation, and only one bad one to lose it. – Benjamin Franklin” Im sorry guest but the LTS name is tainted for ever.

  11. bill says:

    Guest: nobody is wishing anything on the franchisees. The fact is because the company your with doesn’t care about you or the brand you are already paying for it.

    I don’t know how you can call it old news when it just was published. In the first
    4 months of this year 10% of Liberty offices were closed due to filing fraudulent returns. When you read the reports its interesting how similar the fraud was at all these offices. Liberty sells these franchises as not needing any tax experience so where did these franchisees learn how to submit fraudulent returns?

    Buyer Beware!!!

  12. SanFranDan says:

    Bill:

    As usual you are 1000% right on target…..in both posts from yesterday & today. It couldn’t be any clearer where these franchisees “learned” how to submit fraudulent returns.

    C’mon Guest: No one wants to harm law abiding franchisees. After all, that’s how we all began. But even you must realize that if you report fraudulent franchisees to the IRS after you taught them (verbally of course) how to do it, you get the territory back again and sell it all over again for more $$ and then you also get all the customers that the poor franchisee spent years cultivating. It’s a win-win for JTH and nothing for the franchisee. So what else is new? They have to find ways to earn $$ now that the RAL’s are gone……

    Bill: The IRS hasn’t done anything about it because it’s most likely a money machine. After seeing how the federal gov’t REALLY works these last several years, I no longer have such ignorant view points. Everyone gets a piece of the action, right down to the prosecutors, lawyers, judges, court reporters, etc.,etc.,etc.,etc.,etc.

  13. SaraEA says:

    San Fran, I strongly disagree that the IRS allows fraud to happen because it means more money for them in fines etc. It costs a fortune to prosecute these people, money the IRS doesn’t have. IRS Criminal Investigation unit is decimated because of funding cuts, so cases are taking longer to prosecute. Also, they do not prosecute unless several layers of legal departments agree they should (including the US Justice Dept.) This is why CI wins over 90% of the cases it brings–they don’t file any they aren’t almost sure to win.

    The Kone case is not old news. It may seem to be because the arrest was made some time ago. The trial was only concluded recently (Americans are innocent until proven guilty, remember?).

    I agree with Bill. Liberty tracks everything. It has bragged about turning in its own franchisees and complained about why it took the IRS so long to take action. (Read what I just said. CI has to get permission to proceed from its own legal depts, which have to seek permission from other legal depts, which have to go up a few more levels, just so the case can be filed.) If Liberty was concerned about the integrity of its brand, it would itself shut these people down at the slightest hint of funny stuff going on. Instead they wait until the heat is on and then blame the IRS. The honest franchisees, who are the majority, are the ones who suffer because Liberty execs care more about collecting their fees than the brand they sold.

  14. Franchizee says:

    LTS is guilty even by omission. Their systems are set up to spot anomalies. With my little, teeny, tiny store, it would send emails about too many EIC filings in the first week of filing. So it does work.

    I agree with SaraEA, all the stars have to a line or they will not pull the trigger to take to court. They can’t afford to waste money and loose.

    Basically, if EIC was taken away and given to people in another vehicle, 1/2 of H & R Block’s offices would be closed and probably 70% of LTS would be closed and most of JH would close down. With LTS, 50% of the business is due to EIC. Some stores may have more percentage of EIC.

    As an Independent, I have about 10% with EIC and using a bank product to pay their tax return with their refund. The rest pay up front.

    Speaking of H & R, they are trying to recruit everyone with a PTIN in my area to join their team after they decimated the original team last season. So, H & R is really trying to take over the areas, because they will not survive as profitably with competition and the amount of money they need to charge to clients.

  15. Greg says:

    Franchisee,
    I’m a little confused
    You name is franchisee yet your post says your an independent.
    I’m curious….did you use to be a franchisee then became an independent? Also, if this is the case how did dropping the Liberty name drop you percentage of bank products? Also, if this is the case was you bank percentage the same prior to going independent?
    One more point….H&r block had nearly as many offices prior to RAL and RAC and massive eitc and survived and grew and thrived. There was no jh or Liberty prior to this. The bank products and eitc made jh and Liberty. They didn’t exist prior to this. They are the only reason that theses nationally branded companies exist. Block existed and thrived long before this. The vast majority of the franchisees would be forced to close if these went away as the average store in these chains do about 550 returns. Lose half of those and there isn’t enough left to pay the rent.
    The average block store does about 1200 returns (the real percentage is about 40% bank) and no loan product. Lose half and it’s about 650 returns. Add to that some slack form the closed liberty and jh stores say 750 total returns average.
    That’s a good bit more than the current store averages for Liberty and jh.

    Care to comment on this and explain why block will fail when evidence shows a track record of thriving without these products?

  16. SaraEA says:

    Greg, I fully agree. Block used to be “America’s tax preparer,” well before EITC and rapid refunds. Greed took over when these practices started and they drifted away from their core clientele. With so much money to be made, JH and Liberty came on the scene and became the first competition HRB every had. With better management, Block can return to its roots. They still have the best training in the business. They just have to adjust their fees so most people can afford them. Without EITC and bank products, JH and Liberty have nothing to offer.

    When I worked at Block, with over 100 stores in the district only two did little business after first peak. I was in a working class neighborhood, but there were plenty of owner-occupied two-family rentals and small businesses to keep us busy between peaks. Liberty never went after this type of client. Now I work in a CPA firm that does upwards of 1500 returns, maybe half of them small businesses and entities. We do less than a dozen EITC returns and do not offer any bank products. If we closed our doors tomorrow, I suspect that some of our clients would consider Block but wouldn’t even think about going to Liberty.

    Franchizee, what do you mean that Block decimated its team and is trying to build a new one in your area? For that matter, who is filling the void in Baltimore after so many Liberty stores were closed?

  17. guest says:

    I’m enjoy reading the posts but you are thinking only about your area. A lot of what you’re saying is wrong. First, there’s nothing wrong with preparing EITC returns. I’ve had clients going through some low income years who were entitled to EITC. I had to talk them into taking their correct refund. By the way, we have more than 1700 clients across more than one store. About 30% use a bank product. It’s notable that the JH stores are very quiet in my area, but they are still open. So somebody is miscalculating. We did notice that HRBlock has a ‘tuition free’ tax school but you pay for books. Massive mailing for preparers and some HRBlocks having an open house to hire preparers. Sound familiar?
    Sometimes independents have fees so low the customers don’t expect a bank product. We have all types of returns. Its how the store is run that makes the difference.

  18. SanFranDan says:

    SaraEA:

    To just follow up on your post of Aug. 18th, It’s really the Dept. of Justice that needs to build their budget by making more successful prosecutions. The IRS is an easy vehicle for this purpose because the nature of the cases are not “deep pocket” corporate targets but small operators that don’t have the legal resources to fight them. I agree with you to the point that the IRS could be underfunded in this area, however because of the easy smaller targets, this is where they are concentrating their efforts and don’t give up until they find something, even if it takes years. (Fact) We have to agree that the Gov’t does NOT have to answer to any bottom line (or shareholders) and therefore can take their sweet time to investigate and prosecute. That’s partially why they’re running out of money.

    You also need to understand that the nature of criminal investigations for the IRS is to be as aggressive as possible as how they define Tax Law. The ‘normal’ person is not able to challenge them at this level………..and they know it.

    How many Criminal Investigations are currently underway against Corporations versus the small franchisee? My educated guess would be very few, if any at all. They all get the “little guy”. The DOJ has known about JTH and LTS for years and still are not doing much about it, except gathering more information. Why do you suppose that is? Hmmmmm

    BTW: Not only does Liberty track everything, but they load spyware into every piece of software. True fact. Any prospective franchisee needs to understand what a mess they are getting into and are better off walking, no running away.

  19. SaraEA says:

    SanFran, I go to many IRS liaison meetings where CI presents, and a CI person presented more than once in my university graduate program. We know them as the guys who go after the big cheats and bad preparers, but much of their time is devoted to money laundering. When you read about the BIG cases (think Bernie Madoff, hedge fund tricks, insider trading, drug lords), look beyond the headlines and you’ll see that besides SEC, DOJ, Homeland Security, CI was involved in the prosecution. So actually they spend very little time on the “little guy.”

    Their leads about bad preparers come from the IRS Office of Professional Responsibility. These cases are given a lot of publicity, particularly during tax season because they want to scare the *** out of the preparers and taxpayers who knowingly use them. Yet this type of case is a small portion of the work they do. Note that the fraud in the MD Liberty offices in 2016 was picked up by the State of MD. Now it will go to CI, but they didn’t go looking for it. And you do know that big corps have an IRS agent in the complex, with his or her own office. Audits are ongoing, and funny stuff is usually picked up by the SEC because the auditor was given the “second” set of numbers. Not the bailiwick of CI.

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