Seven franchisees of Dunkin' Donuts outlets were yesterday [Wednesday] charged in a federal court with defrauding the US tax system of hundreds of thousands of dollars in taxes through fraudulent milk payments.

The franchisees, who together operate 25 Dunkin' Donuts outlets, skimmed off undeclared rebate cheques from the West Lynn Creamery in the mid-1990s, prosecutors claim. The case is part of a long-running probe into West Lynn Creamery's illegal 'rebate programme' unearthed last year by the IRS (Internal Revenue Service), reported the Boston Globe.

Dunkin' Donuts itself has not been accused of any criminal activity, and the franchisees will be obliged to sell their franchises if convicted of tax evasion, the company said in a statement.