Financial Crime: Founder of nationwide tax-prep firm sentenced to prison for skimming $70 million in exorbitant fees over a 5-year period

United States

Talk about a tax burden.

The founder of a nationwide tax preparation chain has been sentenced to a year and a day in prison for running a tax refund advance scheme that fleeced customers with $ 70 million in excessive fees.

Fesum Ogbazion, of Cincinnati, Ohio, had been accused of drawing in customers to Instant Tax Service, his chain of 1,100 tax preparation offices across the country, with ads offering loans ahead of their expected tax refunds. 

Federal prosecutors said Dayton-based Instant Tax Service (ITS) advertised the loans as being backed by third-party lenders, despite having no partnerships with any financial institution. Instead of paying advances, prosecutors say the business used customers’ financial details from their loan applications to file tax returns, often without their approval or knowledge. The firm would then collect high fees for the work.  

Between 2005 and 2011, prosecutors say the Dayton-based firm collected $ 70 million in such fees from hundreds of thousands of unwitting customers.

“Many hundreds of thousands of victims put their trust in [Ogbazion], ITS and his nationwide advertising campaign, they had every reason to expect some modicum of fiduciary responsibility from ITS. Instead, Defendant abused their trust, consciously misled ITS customers, and defrauded them collectively out of millions of dollars,” prosecutors wrote in a filing asking the judge to sentence Ogbazion to 15 years in prison.

Ogbazion’s attorney, Ben Dusing, wrote in court papers that his client had essentially cut corners during the height of the 2008 economic crisis, when he lost access to lending and his business was struggling.

“This was not the predatory, get-rich-at-the-expense-of-the-poor scheme the government makes it out to be,” Dusing wrote. 

“A lot of the underlying malfeasance was happening at the local, franchise level, but the parent corporation that Mr. Ogbazion headed did collect a portion of those fees,” Dusing said in an interview.

Investigation dates back to 2007

The IRS and other agencies began investigating some of Instant Tax Service’s franchises as early as 2007. In 2013, a federal judge signed a preliminary injunction ordering ITS to cease operating as federal prosecutors prepared to bring charges against it and Ogbazion. At the time, the firm billed itself as the fourth-largest tax preparer in the country.

In 2015, Ogbazion and the company’s vice president, Kyle Wade, were indicted on multiple charges of wire fraud, money laundering and bank fraud. They were also charged with tax evasion for failing to pay payroll tax for their employees for several quarters.  Wade later pleaded guilty to obstructing IRS rules.

Ogbazion was found guilty by a jury  in 2017, of  tax evasion, willful failure to withhold and pay over employment taxes, wire fraud, conspiracy to commit wire fraud, and bank fraud. After the trial, the court dismissed five counts of wire fraud but let the conviction for conspiracy to commit wire fraud and other counts stand. 

Once a classic immigrant tale

Ogbazion’s attorney wrote in court documents that his client had once represented the classic immigrant success story. He said Ogbazion was born the son of a shepherd in rural Ethiopia and moved with his family to the U.S. as a child with the help of missionaries. 

When he was in college, Ogbazion learned that the IRS was going to start allowing taxpayers to file returns electronically, and he put whatever money he could pull together to start a tax preparation business. In 1999, he sold his original business, which had expanded to dozens of offices, to the tax preparation company Jackson Hewitt for $ 3 million. He then used the proceeds to build ITS, according to court filings. 

Since ITS was shut down in 2013, Ogbazion has launched a small moving company in Ohio, which he hopes to expand.

“He has tried to restart his life in another business, and is poised to return to being a productive member of society,” his lawyer said.