HR Block 2011 Annual Report Download - page 22

TAX SERVICES
Government initiatives that simplify tax return preparation or expedite refunds could reduce the need
for our services as a third-party tax return preparer. In addition, changes in government regulations or
processes regarding the preparation and filing of tax returns and funding of tax refunds may increase
our operating costs or reduce our revenues.
Many taxpayers seek assistance from paid tax return preparers such as us not only because of the level of
complexity involved in the tax return preparation and filing process, but also because of paid tax return preparers’
ability to expedite refund proceeds under certain circumstances. From time to time, government officials propose
measures seeking to simplify the preparation and filing of tax returns or to provide additional assistance with
respect to preparing and filing such tax returns or expediting refunds. During tax season 2011, the U.S. Department
of the Treasury (the Treasury) introduced a prepaid debit card pilot program designed to facilitate the refund
process. HRB Bank provides this service as well through its H&R Block Prepaid Emerald MasterCard».
Additionally, during tax season 2011, the IRS increased its emphasis on a process to allow taxpayers to
allocate their refund to multiple accounts. The adoption or expansion of any measures that significantly
simplify tax return preparation, expedite refunds or otherwise reduce the need for a third-party tax return
preparer could reduce demand for our services, causing our revenues or results of operations to decline.
Governmental regulations and processes affect how we provide services to our clients. Changes in these
regulations and processes may require us to make corresponding changes to our client service systems and
procedures. The degree and timing of changes in governmental regulations and processes may impair our ability to
serve our clients in an effective and cost-efficient manner or reduce demand for our services, resulting in the loss
of a significant number of clients, causing our revenues or results of operations to decline.
Certain regulators have alleged that some of our competitors are lending tax preparation fees when they issue
products similar to a RAC to their clients. An adverse ruling in this area could have a material impact on our
offering of RACs resulting in the loss of a significant number of clients, causing our revenues or results of
operations to decline.
Increased competition for tax preparation clients in our retail offices and our online and software
channels could adversely affect our current market share and profitability, and could limit our ability to
grow our client base. Offers of free tax preparation services could adversely affect our revenues and
profitability.
We provide both retail and do-it-yourself tax preparation products and services and face substantial competition
throughout our businesses. The retail tax services business is highly competitive. There are a substantial number
of tax return preparation firms and accounting firms offering tax return preparation services. Many tax return
preparation firms and many firms not otherwise in the tax return preparation business are involved in providing
electronic filing and other related services to the public, and certain firms provide RALs and RACs. Commercial
tax return preparers and electronic filers are highly competitive with regard to price and service, and many firms
offer services that may include federal and/or state returns at no charge. Do-it-yourself tax preparation options
include use of traditional paper forms, digital electronic forms and various forms of digital electronic assistance,
including online and desktop software, both of which we offer. Our digital tax solutions businesses also compete
with in-office tax preparation services and a number of online and software companies, primarily on the basis of
price and functionality.
Federal and certain state taxing authorities currently offer, or facilitate the offer of, tax return preparation and
electronic filing options to taxpayers at no charge. In addition, many of our direct competitors offer certain free
online tax preparation and electronic filing options. We have free offerings as well and prepared 767,000, 810,000
and 788,000 federal income tax returns in fiscal years 2011, 2010 and 2009, respectively, at no charge as part of the
FFA. In addition, we have free online tax preparation offerings and also provided free preparation of Federal
1040EZ forms in fiscal year 2011. Government tax authorities and direct competitors may elect to expand free
offerings in the future. Intense price competition, including offers of free service, could result in a loss of market
share, lower revenues or lower margins.
See tax returns prepared statistics included in Item 7, under “Tax Services.”
The elimination of the IRS debt indicator has caused federal and state regulators to scrutinize the RAL
underwriting practices of third-party financial institutions that provide RALs.
In August 2010, the Internal Revenue Service (IRS) announced that, as of the beginning of the 2011 tax season, it
would no longer furnish the debt indicator (DI), to tax preparers or financial institutions. The DI is an underwriting
tool that lenders have historically used when considering whether to loan money to taxpayers who applied for a
RAL, which is a short term loan, secured by the taxpayer’s federal tax refund.
10 H&R BLOCK 2011 Form 10K