Frank M. Burns
Management & Strategy 5650
Gregory Coon, Ph.D.
Spring 1 2011
H&R Block’s Tax Services segment provides income tax return preparation, electronic filing and other services and products related to income tax return preparation. Clients are offered a number of options for receiving their income tax refund, including a check directly from the IRS, an electronic deposit directly to their bank account, a prepaid debit card, a refund anticipation loan (RAL) or a refund anticipation check (RAC). Major revenue sources include; fees earned for tax preparation services performed at company-owned retail tax offices, royalties from franchise retail tax offices, fees for tax-related services, sales of tax preparation and other software, online tax preparation fees, RALs and RACs. The purpose of this paper is to research the impact of the recent decision the Office of Comptroller of the Currency (OCC), the Treasury Department agency that regulates national banks, made concerning the elimination of refund anticipation loans (RAL) funded by HSBC, H&R Block’s lender. We will also look at H&R Block’s new management strategy to combat their decision. History of H&R Block
H&R Block is one of the world's largest tax services providers, utilizing more than 100,000 trained tax professionals and having prepared more than 550 million tax returns worldwide since 1955. Brothers Henry W. Bloch and Richard A. Bloch founded the company in 1955 and grew the business to become a brand and franchising icon. The Kansas City based company also offers banking, personal finance and business consulting services. Today, H&R Block operates 12,500 retail tax offices in the United States plus an additional 1,400 abroad. Competitive Environment
There are a significant amount of tax return preparers, tax preparation firms and accounting firms that offer tax preparation services such as H&R Block, Jackson Hewitt and Liberty Tax. All these companies are highly competitive concerning their prices and services and all have offered RALs. RALs (and similar products) are essentially loans secured by the promise of a tax refund. Fees for tax preparation products and tax preparation services are generally subtracted from the refund amount and the balance issued to the consumer in some form (check, debit card, direct deposit, etc.) in advance of the taxpayer’s actual refund less interest and loan fees. In a tough economy, banks and other lenders are growing wary of offering consumer loans. Complicating factors, the IRS is sticking to their guns in a statement made back in August to no longer provide tax preparers, banks and lenders with the “debt indicator” that lenders use to determine eligibility for RALs. The debt indicator is an electronic acknowledgment to tax preparers advising whether any part of a taxpayer’s refund has been earmarked for offset due to outstanding tax debts or priority obligations such as unpaid child support or delinquent student loans. In previous years, the IRS provided this information, free of charge, to third party preparers, who then made the decision to offer a variety of loan products depending on the answer. Beginning in 2011, that information will no longer be provided to third parties, prompting many lenders to pull out of the business altogether. Dec. 28--In a blow to Kansas City-based H&R Block Inc., federal regulators have ordered its banking partner to stop making refund anticipation loans used by millions of Block's customers. This will definitely cause H&R Block to lose customers. Many of those customers will seek out other tax preparation firms that still offer RALs. Jackson Hewitt Tax Service Inc. said on Dec. 17 it had secured funding that allows it to offer refund anticipation loans for the upcoming tax season. Jackson Hewitt amended its agreement with Republic Bank & Trust Co. to...