The Justice Department sued to shut down 125 franchises of No. 2 American tax preparer Jackson Hewitt Tax Service Inc. as the IRS accused the outlets of submitting thousands of fraudulent returns that cost the government more than $70 million.

The retail offices — in Detroit, Atlanta, Chicago, and the Raleigh-Durham region of North Carolina — preyed on people of “modest means,” the government said. The stores prepared more than 105,000 returns last year. All of them are partly owned by Farrukh Sohail of Atlanta, who was accused in court papers of creating a “business environment” where “fraudulent tax return preparation is encouraged and flourishes.”

Jackson Hewitt shares plunged $5.87, or 18%, to $26.53 as of 4:23 p.m. yesterday in composite trading on the New York Stock Exchange.

“This is the largest enforcement action of its kind,” said Internal Revenue Service Commissioner Mark Everson. “People of modest means” who owe the government money may be “left picking up the pieces,” he said.

The government said yesterday’s action, the third time Jackson Hewitt franchises have been targeted by federal authorities in a year, is part of a crackdown on tax cheaters in anticipation of the April 17 deadline for individuals to file returns. The government has obtained more than 230 court orders to shut down tax preparer outlets since 2001.

Sheila Cort, a Jackson Hewitt spokeswoman, didn’t return calls seeking comment. A woman at a Jackson Hewitt office in Chicago said Mr. Sohail no longer works at that location and has left the state.

The government suits name 24 individuals who work or manage the franchises, including Mr. Sohail, one of the largest owners. Jackson Hewitt said it prepared 3.66 million tax returns in fiscal 2006, meaning Mr. Sohail’s franchises would have prepared about 2.8% of the total.

“Sohail’s main focus is volume, quotes, and profit, all at the expense of preparing honest, accurate tax returns,” the Justice Department said in court papers.

Mr. Sohail and other defendants claimed refunds based on phony W-2 forms, fabricated expenses, and fuel tax credits in “absurd amounts,” the court documents said. There was also “massive fraud” in federal earned income tax credit claims, the government said.

It may take months to resolve the suits and close all the offices, a Justice Department lawyer working on the case, Seth Heald, said. He said the investigation is continuing and there could be more charges.

In the last fiscal year that ended on April 30, Jackson Hewitt’s net income rose 16% to $57.9 million on $275 million of revenue. It has been taking market share from rival H&R Block, the No. 1 tax preparer, which has been hurt by regulatory probes, software failures, and accounting errors.

Jackson Hewitt’s business model relies heavily on selling “territories” to franchisees, who use the Jackson Hewitt brand name and sell the company’s financial products. The franchises pay royalties to Jackson Hewitt as well as fees for the products used and for advertising the company does to promote the brand name.