HR Block 2006 Annual Report Download - page 74

from July 2006 through June 2011. Our purchases of the participation market, as well as free state-sponsored online filing programs. Price and
interests are financed through short-term borrowings, and we bear all of marketing competition for tax preparation services increased in fiscal
the credit risk associated with our interests in the RALs. Revenue from years 2006 and 2005.
our participation is calculated as the rate of participation multiplied by GOVERNMENT REGULATION –Primary efforts toward the regulation
the fee paid by the borrower to the lending bank. Our RAL participation of U.S. commercial tax return preparers have historically been made at
revenue was $177.9 million, $182.8 million and $168.4 million in fiscal the federal level. Federal legislation requires income tax return
years 2006, 2005 and 2004, respectively. preparers to, among other things, set forth their signatures and
SEASONALITY OF BUSINESS –Because most of our clients file their identification numbers on all tax returns prepared by them, and retain
tax returns during the period from January through April of each year, all tax returns prepared for three years. Federal laws also subject
substantially all of our revenues from income tax return preparation income tax return preparers to accuracy-related penalties in connection
and related services and products are received during this period. As a with the preparation of income tax returns. Preparers may be prohibited
result, our tax segment generally operates at a loss through the first from further acting as income tax return preparers if they continuously
eight months of the fiscal year. Historically, these losses primarily and repeatedly engage in specified misconduct. With certain exceptions,
reflect wages of year-round personnel, training of tax professionals, the Internal Revenue Code also prohibits the use or disclosure by
rental and furnishing of retail tax offices, and other costs and expenses income tax return preparers of certain income tax return information
relating to preparation for the upcoming tax season. Additionally, the without the prior written consent of the taxpayer. In addition, the
tax business is affected by economic conditions and unemployment Gramm-Leach-Bliley Act and Federal Trade Commission regulations
rates. Peak revenues occur during the applicable tax season, as follows: adopted thereunder require income tax preparers to adopt and disclose
consumer privacy policies, and provide consumers a reasonable
United States and Canada January – April
opportunity to ‘‘opt-out’’ of having personal information disclosed to
Australia July – October
unaffiliated third parties for marketing purposes. Some states have
adopted or proposed strict ‘‘opt-in’’ requirements in connection with use
In the current fiscal year, the CRA extended the Canadian tax season or disclosure of consumer information.
to May 1, 2006. Clients served in our Canadian operations in fiscal year We believe the federal legislation regulating commercial tax return
2006 includes approximately 41,400 returns in both company-owned and preparers and consumer privacy has not had and will not have a
franchise offices which were accepted by the client on May 1, 2006. The material adverse effect on the operations of H&R Block. In addition, no
revenues related to these returns will be recognized in fiscal year 2007. present state statutes of this nature have had a material adverse effect
Last year, the Canadian tax season was extended to May 2, 2005. Clients on our business. We cannot, however, predict what the effect may be of
served in our Canadian operations in fiscal year 2005 includes the enactment of new statutes or adoption of new regulations.
approximately 47,500 returns in both company-owned and franchise The federal government regulates the electronic filing of income tax
offices which were accepted by the client on May 1 and 2, 2005. The returns in part by requiring individuals and businesses to be accepted
revenues related to these returns were recognized in fiscal year 2006. into the electronic filing program. Once accepted, electronic filers must
COMPETITIVE CONDITIONS –The retail tax services business is comply with all publications and notices of the IRS applicable to
highly competitive. There are a substantial number of tax return electronic filing, provide certain information to the taxpayer, comply
preparation firms and accounting firms offering tax return preparation with advertising standards for electronic filers, and be subjected to
services. Many tax return preparation firms and many firms not possible monitoring by the IRS, penalties for disclosure or use of
otherwise in the tax return preparation business are involved in income tax return preparation and other preparer penalties, and
providing electronic filing and RAL services to the public. Commercial suspension from the electronic filing program. States that have adopted
tax return preparers and electronic filers are highly competitive with electronic filing programs for state income tax returns have also
regard to price, service and reputation for quality. In terms of the enacted laws regulating electronic filers and the advertising and offering
number of offices and personal tax returns prepared and electronically of electronic filing services.
filed in offices, online and via our software, we are the largest company Federal statutes and regulations also regulate an electronic filer’s
providing direct tax return preparation and electronic filing services in involvement in RALs. Electronic filers must clearly explain the RAL is a
the U.S. We also believe we operate the largest tax return preparation loan and not a substitute for or a quicker way of receiving an income
businesses in Canada and Australia. tax refund. Federal laws place restrictions on the fees an electronic filer
Our digital tax solutions businesses compete with a number of may charge in connection with RALs. In addition, some states and
companies. Intuit, Inc. is the dominant supplier of tax preparation localities have enacted laws and adopted regulations for RAL
software and is also our primary competitor in the online tax facilitators and/or the advertising of RALs. There are also many states
preparation market. There are many smaller competitors in the online
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H&R BLOCK 2006 Form 10K