Lesage couple blames H&R Block for IRS audits

HUNTINGTON – A Lesage couple is suing H&R Block after its alleged negligence caused them to be audited by the Internal Revenue Service.

HRB Tax Group Inc.; Lora L. Ferguson; Phillip Alexander; and John Doe Agents were also named as defendants in the suit.

For multiple years prior to the tax year 2006, Najib Ayoub and Christie Ayoub sought tax advice from H&R Block, whom they also had prepare their tax returns, according to a complaint filed March 19 in Cabell Circuit Court.

The Ayoubs claim during 2006 they approached H&R Block and Ferguson seeking tax advice about starting a side business centered on buying various lots of merchandise for the purpose of reselling the merchandise on eBay.

Specifically, Najib Ayoub inquired as to whether the proposed side business was a valid proposition; what types of documentation and records he would need to retain foe tax purposes; what types of items were deductible; and what overhead expenses could be claimed on his tax returns, according to the suit.

The Ayoubs claims H&R Block's agents advised them that the business proposal was valid, that they could claim certain losses and overhead on the tax returns and that they should retain account printouts showing inventory purchased and sold and receipts.

Throughout the 2009 tax year, The Ayoubs purchased and resold numerous items primarily on eBay and in early 2010, they went to H&R Block's facility in Barboursville to have their 2009 tax return prepared, according to the suit.

The Ayoubs claim they provided the defendants with their W-2s, eBay account printouts showing inventory purchased and sold, receipts and other documents and also inquired as to whether there was anything else they needed to provide.

H&R Block informed the Ayoubs that they would take care of the rest, according to the suit.

The couple claims the following year, the Ayoubs provided the defendants with the same information and when they inquired as to anything else they needed to provide, they were told the same thing.

As part of their tax preparation, the Ayoubs obtained the H&R Block Guarantee, which guarantees their tax returns were properly prepared, as well as purchasing the H&R Block Peace of Mind insurance policy, in which H&R Block agreed to indemnify the Ayoubs and to cover additional taxes after an audit up to $5,000, according to the suit.

The Ayoubs claim their 2009 and 2010 tax returns were audited by the IRS in 2011. Following the audit, the IRS determined that, contrary to the advice, representations and determinations provided by H&R Block and its agents, the Ayoubs could not claim certain losses, costs, expenses and other deductions related to the reselling business on their tax returns.

As a result of the audit, the IRS determined that the Ayoubs owed an additional $13,027.12 in taxes and interest for the 2009 and 2010 tax years, according to the suit.

The Ayoubs claim the defendants were negligent and breached their duty of good faith.

The defendants also "fraudulently misrepresented to the plaintiffs that the H&R Block Guarantee and Peace of Mind Insurance Policies would cover additional tax assessment, interest and penalties imposed upon the Plaintiffs in the event the IRS audited their tax returns," according to the suit.

The Ayoubs are seeking compensatory and punitive damages with pre- and post-judgment interest. They are being represented by D.C Offutt Jr. and Michael R. Dockery.

The case has been assigned to Circuit Judge F. Jane Hustead.

Cabell Circuit Court case number: 12-C-185