HR Block 2014 Annual Report Download - page 19

H&R Block, Inc. | 2014 Form 10-K 11
desktop software, all of which we offer. Our DIY services and products compete with a number of online and software
companies, primarily on the basis of price and functionality. Individual tax filers may elect to change their tax
preparation method, choosing from among various assisted and DIY offerings. Intense price competition could result
in a reduction of our market share, lower revenues or lower margins and profitability
U.S. federal and certain state taxing authorities, as well as taxing authorities in certain foreign jurisdictions in which
we operate, currently offer, or facilitate the offering of, tax return preparation and electronic filing options to taxpayers
at no charge, and volunteer organizations prepare tax returns at no charge for low-income taxpayers. In addition,
many of our competitors offer certain tax preparation services and products and electronic filing options at no charge.
In order to compete, we offer certain free tax preparation services and products at no charge. We enabled the
preparation of 767 thousand, 663 thousand and 721 thousand U.S. federal income tax returns in fiscal years 2014,
2013 and 2012, respectively, at no charge through the FFA. We also have other free online tax preparation offerings
and provided free Federal 1040EZ filings online and in retail offices in fiscal years 2013 and 2012, and free RACs to
certain clients in fiscal year 2012. There can be no assurance that we will be able to attract clients or effectively ensure
the migration of clients from our free tax service offerings to those for which we receive fees, and clients who have
formerly paid for our tax service offerings may elect to use free offerings instead. These competitive factors may
diminish our revenue and profitability, or harm our ability to acquire and retain clients.
Government tax authorities, volunteer organizations and our direct competitors may also elect to expand free
offerings in the future. From time to time U.S. federal and state governments have considered various proposals (often
referred to as "Return-Free Filing" or "Pre-Populated Returns") through which the respective governmental taxing
authorities would use taxpayer information provided by employers, financial institutions and other payers to "pre-
populate," prepare and calculate tax returns and distribute them to taxpayers. The taxpayer could then review and
contest the return or sign and return it. Although the FFA has kept the federal government from becoming a direct
competitor to our tax service offerings in the U.S., it has fostered additional online competition and may cause us to
lose significant revenue opportunities. We anticipate that governmental encroachment at both the U.S. federal and
state levels, as well as comparable government levels in foreign jurisdictions in which we operate, may present a
continued competitive threat to our business for the foreseeable future.
See tax returns prepared statistics included in Item 7, under "Tax Services – Operating Statistics."
Failure to comply with laws and regulations that protect our clients' and employees' personal and financial
information could harm our brand and reputation and could result in significant fines, penalties and damages.
A number of our businesses collect, use and retain large amounts of personal client information and data, including
credit card numbers, tax return information, bank account numbers and social security numbers. In addition, we
collect and maintain personal information of our employees in the ordinary course of our business. Some of this
personal information is held and some transactions are executed by third parties. We use security and business controls
to limit access to and use of personal information. However, unauthorized individuals or third parties may be able to
circumvent these security and business measures, which may require notification under applicable data privacy laws
and regulations. We employ contractors and temporary employees who may have access to the personal information
of clients and employees or who may execute transactions in the normal course of their duties. While we conduct
employee background checks, as allowed by law, and limit access to systems and data, it is possible that one or more
of these controls could be circumvented. Improper disclosure or use of our clients' personal and financial information
could result in damage to our brand and reputation; moreover, actions required to remediate improper disclosures
could be costly.
We are subject to laws, rules and regulations relating to the collection, use, disclosure and security of consumer
financial information, which have drawn increased attention from U.S. federal and state governments, as well as
governmental authorities in foreign jurisdictions in which we operate. In the U.S., the IRS imposes various prohibitions
on the use or disclosure by a tax return preparer of a taxpayer's information for purposes other than tax return
preparation without the prior written consent of the taxpayer. In addition, other regulations require financial service
providers to adopt and disclose consumer privacy policies and provide consumers with a reasonable opportunity to
"opt-out" of having nonpublic personal information disclosed to unaffiliated third parties. Several jurisdictions have
passed new laws in this area and it continues to be an area of interest across multiple jurisdictions. These laws may
be interpreted and applied inconsistently from jurisdiction to jurisdiction and our current data protection policies and
practices may not be consistent with those interpretations and applications. In addition, changes in these U.S. federal