Tax Problems at H&R Block

As if last year's restatement weren't bad enough, the tax preparer has taken a tumble in the area it knows best.
Dave CookFebruary 24, 2006

H&R Block Inc. has announced it will restate earnings for fiscal years 2004 and 2005 because it underestimated its own “state effective income tax rate,” Reuters reported.

The Kansas City, Missouri-based company added that it owes another $31.7 million in back taxes, according to MarketWatch (no word on penalties or interest). Earnings will reportedly be trimmed by 2 cents per share for fiscal 2004 and 7 cents for 2005.

Last year, accounting errors caused the company to overstate earnings for the 2003 and 2004 fiscal years by $91.1 million, according to Bloomberg, and to restate them downward by about 50 cents per share.

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“Refund anticipation loans” — short-term cash advances against tax refunds, generally to low-income taxpayers — were at the root of the new $31.7 million charge, wrote MarketWatch. Last December, Block settled four state class-action lawsuits covering more than 8 million customers; consumer advocates have alleged that the loans took advantage of poorer customers. Indeed, annual interest rates on such loans can hit 700 percent per year, according to the Center for Responsible Lending, MarketWatch reported.

The wire service added that earlier this month, California State Attorney General Bill Lockyer sued Block on much the same grounds; the company has reportedly countered that the suit has “no legal or factual merit.” Even so, it may be a distraction during Block’s make-or-break busy season.