H&R Block reports drop in returns prepared but higher revenues

H Block Inc. handled 3.6 percent fewer tax returns in the just completed season but said its revenues nevertheless increased.

The Kansas City-based tax preparation company said its Block stores, digital products and other tax services handled 20.709 million U.S. returns through April 18 this year. A year ago, it had handled 21.482 million returns.

Its decline came despite a 0.7 percent increase in the total number of returns received by the Internal Revenue Service through April 18. The 131.17 million returns compared with 130.2 million received through April 19 a year ago.

H Block said its return count fell mostly because it stopped doing free Federal 1040 EZ returns.

Revenues increased from a change in pricing and other efforts.

“Additionally, the focus on our Tax Plus strategy of attaching more financial services products yielded positive results, as a greater proportion of our clients are benefiting from using our financial products,”

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Analyst Alexander Paris Jr., with Barrington Research Associates, called the decline in returns largely “self-inflicted” and potentially good for earnings given that the returns generated no revenues but took time to do.

Paris said the tax preparation industry is poised to benefit from the role that tax returns play in the Affordable Care Act.

“I’m very excited about the tax preparation business today both for H Block and its competitors in the business given the significant tax code changes that lie ahead that are Obamacare,” Paris said.

For example, the act provides subsidies for health care coverage this year based on an individual’s estimate of their income. The amount of the subsidy will be reconciled on the individual’s 2014 tax return when his actual income for the year will be known.

H Block’s largest decline in returns came at its company-owned stores that reported 7.9 percent fewer tax filings than a year ago. Franchise stores saw a 2.9 percent decline.

The company’s digital division, which includes its software and online services, handled the same number of returns as a year earlier, approximately 6.4 million.

Despite the decline in tax returns prepared, Block said it would report higher revenues when it releases financial results on June 11.

The IRS had said Friday that more than 94.8 million returns delivered refunds totaling $254.7 billion, or an average refund of $2,686. A year ago, the average refund had been $2,659 through April 19.