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D76/100FDD 2024
Liberty Tax Service — Litigation & Risk
Business Services - Tax & Financial · FDD Items 3, 4 & 5
Elevated Risk
82 cases disclosed in FDD Items 3 and 4.
Source: FDD Items 3–5
FDD Items 3 & 4
Litigation Metrics
Cases disclosed
82
Total from FDD Items 3 and 4
Bankruptcy (Item 4)
—
Franchisor or officer bankruptcy
Overall risk score
76 / 100
FranchiseVerdict composite
Rating
CAUTION
STRONG / MODERATE / CAUTION / AVOID
7(a) FOIA data · FY2020–present
SBA Loan Performance
Aggregated from public SBA 7(a) loan disclosures. Default rate is the share of loans that were charged off or settled for less than the full balance.
Total 7(a) loans
264
Government-backed loans issued
Default rate
11.7%
vs <3% typical · system-wide
5-yr default rate
0.0%
Defaults
27 loans
Loans charged off or defaulted
Total loan volume
$41.2M
Avg loan size
$156K
Participating lenders
107
FDD Items 5, 6 & 17 — what you give up
Contract Risk Indicators
Mandatory arbitration
Required
Disputes resolved outside court — limits your legal options
Jury trial waiver
Waived
You give up the right to a jury trial
Non-compete
2 yrs
Post-termination restriction on similar businesses
Franchisor can compete
Yes
Franchisor can open competing locations in or near your territory
Right of first refusal
Yes
Franchisor can match any purchase offer when you try to sell
Governing law
Virginia
State whose law governs disputes — relevant if you're not based there
What drove the 76/100 rating
Risk Score Breakdown
- 01MINORSystem contracting sharply: 1,885 units declining 8.9% YoY signals accelerating franchisee exits and market saturation
- 02HIGHExtensive litigation including DOJ/IRS settlement and class actions indicates regulatory scrutiny, reputational damage, and potential ongoing compliance costs
- 03MINORNo Item 19 (average net income) disclosure combined with $147k average revenue raises profitability questions—14% royalty on declining revenue severely impacts franchisee margins
- 04HIGHGoing Concern = False suggests franchisor financial distress, heightening risk of operational support degradation or system collapse
- 05MINORHigh royalty burden (14% of gross receipts) leaves minimal cushion given seasonal tax prep business and declining unit count indicates franchisees unable to sustain profitability
Severity inferred from FDD text — not a regulatory or legal classification
Litigation data from FDD Items 3, 4, and 5. SBA data from public 7(a) FOIA records (FY2020–present). Not legal advice — consult a franchise attorney before signing any franchise agreement.