Another player in the Bernie Madoff saga has fallen. His longtime auditor, David Friehling, pleaded guilty in federal court on Tuesday to charges of securities fraud, investment adviser fraud, making false filings with the SEC, and obstructing or impeding the administration of the Internal Revenue laws (among others).

Despite the plea, Friehling still told U.S. District Judge Alvin K. Hellerstein, "At no time was I ever aware Bernard Madoff was engaged in a Ponzi scheme."

The Internal Revenue Service is reporting that it still has about 5.2 million tax rebate checks which it cannot send out because the people who should get them have not filed a 2007 tax return. According to a report in USA Today, these citizens only need to fill in a few lines on IRS form 1040A, in order to get their money. The IRS says that veterans and retirees, those who could use the money the most, make up the major portion of the population that has not yet received it's rebates. The IRS expects to issue 124 million rebate payments by year's end. So far, about 76.5 million of those payments have gone out.

The federal inquiry into Jackson-Hewitt Tax Services (NYSE: JTX) has expanded amid allegations that more than 125 of the company's offices knowingly helped tens of thousands of its customers file fraudulent tax returns to obtain $70 million in refunds. Last week, the company disclosed that it was being investigated by the IRS.

The company's stock has not tanked on news, partly because the announcement is just an expansion of the current investigation. For now, the accusations of wrongdoing are limited to the company's franchisees, but that could of course change.

Even if Jackson-Hewitt itself isn't charged, this raises serious questions about the company's internal controls, training, and oversight of its franchisees. The company said in a filing that it "intends to complete the internal review promptly and to implement a variety of enhancements in the areas of compliance and monitoring for the 2008 filings season."

This raises many questions.

Will the scandals hurt the company's growth? Will potential franchisees want to associate themselves with a company that is the subject of such a scandal?

The shares haven't tumbled that much on the news of the investigation and I think the market may be underestimating the effect this will have on the company's growth.

When T.S. Eliot began The Waste Land noting that "April is the cruelest month," the American poet wasn't talking about tax season. But anyone who has ever been audited might adopt the phrase to suit their circumstances . . . and the month is rapidly becoming crueler and crueler each passing year.

According to an article in today's New York Times, the Internal Revenue Service has become increasingly more likely to audit middle-class Americans. In fact, since 2000, audits have nearly tripled among those taxpaying Americans who earn between $25,000 and $100,000 per year. During the past six years, middle-class households (who make up nearly half of all taxpayers) have seen their odds of an audit rise from 1 in 377 to 1 in 140.

Kevin Brown, the I.R.S. deputy commissioner, said the agency's audit practices previously paid too little attention to the middle class, focusing instead on those making $1 million or more. "We try to run a balanced audit program," he now confirms. Even with the ramped-up audits on the nation's middle class, those in the highest tax bracket remain more like to be audited. Taxpayers with income above $100,000 have a 1 in 59 chance of being audited; those fortunate enough to make $1 million or more enjoy the misfortune of a 1-in-16 chance of an audit. Finally, those making below $25,000 face only a 1 in 94 chance of enduring an audit.

If you are among the unlucky middle-class households to be audited, and if evidence of errors are found in your documents, the average penalty is about $4,100.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.