H&R Block: ‘Free now is the norm’ in simple tax returns

For filers of simple tax returns, “free now is the norm rather than the exception,” H&R Block CEO Bill Cobb declared Wednesday.

The Kansas City-based company said it is offering free 1040EZ returns to customers at its retail offices in the tax season ahead. Do-it-yourself filers will see free filing of 1040EZ, 1040A and state forms.

And filers at Block tax offices who are expecting a refund can get a free Refund Advance loan. No interest. No fees.

“It’s about as client-friendly of a loan as you’re likely ever to find,” Cobb said during a conference call with analysts.

Cobb spoke after the company reported that its revenues rose and its loss was flat in the seasonally slow months of August, September and October, when compared with a year ago. H&R Block does most of its business in the first four months of each year as tax season progresses.

Competition forced H&R Block’s free theme this year. Cobb acknowledged that rivals were grabbing clients last year with free filings and that H&R Block needed to compete more aggressively on that front.

H&R Block, TaxAct and Intuit, which sells TurboTax, gained a new digital tax competitor this year. Credit Karma announced Wednesday it is offering a free digital tax service, expecting to make money on credit cards and other products tax customers might select from banks offering them on its website.

Cobb said the purpose of free filings is to gain new customers and then earn revenues with other products such as its Identity Shield offer.

Refund loans may be a big draw to tax preparers that offer them.

Changes this coming tax season mean that many early filers won’t see refunds until mid-February or later. The changes target fraud and will impact filers who claim an Earned Income Tax Credit or Additional Child Tax Credit.

Cobb said that could mean 15 million traditionally early filers who depend on their refunds won’t see them right away.

“We’re looking to do a lot of loans, and we’ll be marketing them aggressively,” Cobb said during the call. “New clients are going to be the key.”

H&R Block has lined up lenders ready to cover up to $1.65 billion in its Refund Advance loans. It will pay the lenders a fee of between $32 and $36 for each loan without charging the tax filer, Cobb said.

The free-based push is aimed at halting a decline in recent years in the number of tax customers H&R Block has had. The drop last year was severe enough that Cobb called the results unacceptable.

Cobb said he expected to slow, but not stop, the decline in the number of customers Block sees in its retail offices this tax season. He expects an increase in digital customers, calling a decline last year an anomaly.

H&R Block plans to meet those goals while spending less on marketing. Cobb said it will spend the money more effectively. Last year’s marketing included a sweepstakes promotion that Block is not repeating this year.

In its earnings report, H&R Block lost $146 million, or 68 cents a share, during what amounts to the second quarter of its fiscal year that ends just after the April 15 tax filing deadline. A year ago, the second-quarter loss was $145 million, or 55 cents a share.

Revenues in the latest quarter were $131.3 million, compared with $128.4 million.

Block typically loses money in those months as its spends to gear up for the tax season but collects less than 5 percent of its annual revenues, which come mostly in February, March and April.

The company’s earnings had fallen by 21 percent during the tax year that ended last April 15.

During the quarter, H&R Block bought back 7.6 million of its own shares from investors, spending $168.4 million or an average of $22.16 a share. The repurchases, and others in the last year, increase the quarter’s per share earnings results because fewer shares remain in shareholders’ hands.

This story was originally published December 7, 2016 at 3:24 PM with the headline "H&R Block: ‘Free now is the norm’ in simple tax returns."