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Hewitt Has Sights on Namesake Tax Firm

Taking back his namesake brand and pioneering company has never been far from the mind of Jackson Hewitt Tax Service (JTX) founder John Hewitt. Over the past two weeks, Hewitt, now CEO of Liberty Tax Service, finally put money behind the ambition, as Liberty's closely held parent, JTH Tax, snatched a 9.3% stake in Parsippany (N.J.)-based Jackson Hewitt. "It's something I've thought about a lot," Hewitt said on Mar. 31. "I want to be No. 1 and have more market share than anyone."

Liberty's stake, disclosed to the Securities & Exchange Commission a day earlier, was the first step, he says, toward a prospective merger—either a straight acquisition or reverse merger. In any event, "we would take control of the joint enterprise." Privately held Liberty is based in Virginia Beach, Va.

It's not the first time Hewitt has eyed opportunities amid the struggles of other tax-prep firms. Three years ago, during a downturn for H&R Block (HRB), Hewitt says a group of managers for private equity funds approached him. That deal didn't happen, but now he's looking forward to a meeting with Jackson Hewitt's board "to see if we can do a friendly deal."

Pioneered the Use of Tax Software

Shares of Jackson Hewitt, which had been severely depressed, soared 25% in mid-afternoon trading on Mar. 31, to 5.46. Officials at Jackson Hewitt didn't immediately return a call requesting comment.

Jackson Hewitt, an icon in the tax-prep industry, pioneered the use of software to prepare clients' taxes more efficiently, and its services spread, thanks to affordable fees that allowed more people to have someone else do their returns for them. Eventually, refundable credits such as the Earned Income Tax Credit, which distributes government money to the working poor, benefited such tax preparers, though Hewitt has often been critical of some of the practices of the company he founded.

Hewitt founded Liberty Tax Service in 1997 after he left Jackson Hewitt prior to its sale for $483 million to Cendant. Jackson Hewitt was spun off from Cendant in 2004.

Epstein is a correspondent in BusinessWeek's Washington bureau.

Epstein is a correspondent in BusinessWeek's Washington bureau.

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