I was reading this article in the wall street journal and I often use H&R Block but I’m confused about what they’re talking about. Any accountants out there?
“Get Money Fast for Free.” That is the lure H&R Block HRB +0.90%uses to attract more customers. It already prepares one in six U.S. tax returns. But the company also makes a big chunk of its money from services that are anything but free.
.While potentially lucrative, those lines of business also open up the company, which Wednesday reports results for the third fiscal quarter ended January, to a number of regulatory risks.
Since 2010, for example, H&R Block hasn’t been able to offer “refund anticipation loans,” following regulators’ crackdown. While the change helped force rival Jackson-Hewitt into bankruptcy, H&R Block was able to replace much of that lost revenue: Analysts expect earnings of four cents a share in the recently completed quarter versus a four-cent loss a year earlier. One way has been through a shift to refund anticipation checks that advance customers just the company’s preparation fee, deducting it from the refund. The company also offers temporary debit cards and bank accounts for additional fees.
Retail customers paid H&R Block $183 in average preparation fees last year, down slightly from when the company processed loans. But this is still three times the cost of Intuit Inc.’s INTU +1.97%TurboTax and six times the retail cost of H&R Block’s own software.
H&R Block has faced only minor regulatory scrutiny over the checks. Risks abound, though. One is that the “earned income tax credit” making up much of lower-income filers’ refunds is modified. Another threat is that the Treasury Department’s botched effort last year to route refunds to low-cost debit cards is revived. That could undercut H&R Block’s own cards.
There also is the risk posed by tax-preparation competition from payday lenders such as Cash America International Inc. CSH +2.22%That group has attracted scrutiny from the new Consumer Financial Protection Bureau, which could spill over to services offered by the likes of H&R Block. Yet at 11 times forward earnings, H&R Block’s stock trades at a 20% premium to listed payday lenders, suggesting this risk isn’t priced in.
One positive is that software isn’t yet gaining market share at H&R Block’s expense. Instead, it is converting pen-and-paper filers. That may change, though, especially if online tax forms offered by the government really provide a free alternative.
Acme you are wrong about some things. The IRS isnt trying to eliminate paid preparers. You are not going to get uneducated preparers. You have uneducated preparers now. Only 3 states have any regulation in tax prep so anyone can call themselves a tax preparer. As of now, the IRS has a mandatory exam that all preparers must pass (unless they are an EA, attorney, or CPA) and they must also get a PTIN. This will weed out all the people that cannot pass the exam. HRB did offer free RAC’s and 1040ez’s during Feb when the number of filers is at its highest.
There is no free lunch ( or, tax return ). The whole situation is a 3 ring circus type mess. Free file is advertised but the worm always contains a hook that is used to reel in your credit card for payment of something. Just saw a news release today that H&R Block’s stock has taken an 11% hit and that they were closing offices and laying off workers nationwide. The IRS is doing all it can to eliminate paid preparers and trying to get people to file their own returns online so they won’t have to hire workers to process the information. So we are going to have scads of people who know nothing about taxes, accounting or compters; all putting together tax returns that they are totally confused about and efiling them. Can you see the slightest possibility that chaos will rule the day?