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TurboTax Offers Live Tax Advice to Lure Clients From H&R Block

H&R Block Inc. tax associate Diane Frankel, right, prepares taxes for Diana Horton in New York, on March 2, 2012. Photographer: Scott Eells/Bloomberg
H&R Block Inc. tax associate Diane Frankel, right, prepares taxes for Diana Horton in New York, on March 2, 2012. Photographer: Scott Eells/Bloomberg

Feb. 14 (Bloomberg) -- Louis Alleva is a soldier in Intuit Inc.’s campaign to persuade Americans to ditch their tax preparers and use its software to file their returns.

The 51-year-old accountant works from the office on the all-weather front porch of his suburban New York home, where last month he was staring at three computer screens as he helped Intuit’s tax professionals provide free advice to do-it-yourself filers. The company, whose TurboTax product is the most widely used digital and online tax-preparation program, sees the service as a way to grab customers from H&R Block Inc. and Jackson Hewitt Tax Service Inc., whose storefront locations cater to low-to-middle income taxpayers.

More than 60 percent of the 112 million individuals who submitted their returns electronically in 2011 used a tax professional, according to the U.S. Internal Revenue Service. Intuit is offering live help this year -- and advertising heavily to promote it -- to lure such customers to TurboTax, which generally is less expensive than paying a tax preparer, said Dan Maurer, senior vice president of the consumer group for the Mountain View, California-based firm.

“We see the potential for as many as another 40 million customers who could be using TurboTax,” Maurer said. “That’s an enormous opportunity.”

The number is based on estimates of taxpayers currently going to a tax store who may consider using TurboTax if they knew they could speak to an adviser, Maurer said. About 24 million people use TurboTax software online or through mobile devices, he said.

Shopping Around

The software generally costs at least $19.99, depending on the complexity of the return, according to Ashley Kirkendall, an Intuit spokeswoman. H&R Block, the biggest U.S. tax preparer, usually charges at least $99 for in-store tax preparation, said Robert Turtledove, senior vice president and chief marketing officer for the Kansas City, Missouri-based firm. Both companies also are offering a free service for taxpayers with the simplest returns, such as those filing a form 1040EZ.

Consumers may have a difficult time figuring out how much tax preparation will cost and shopping around ahead of time, said Jean Ann Fox, director of financial services for the Consumer Federation of America in Washington. “Generally tax preparers charge by the form so often you don’t know how much it may cost,” she said.

In the first nine months of last year, H&R Block topped advertising spending among tax preparers at $114 million, a 13 percent increase from the same period in 2010, according to the latest available data from Nielsen Holdings NV. Intuit was second, dedicating about $93 million in the first three quarters of 2011, which was a 7.6 percent increase. Jackson Hewitt, the second-largest U.S. tax preparer, trailed with the next biggest expenditure of $18 million.

Farm Income

Intuit has hired more than 700 tax attorneys, certified public accountants and IRS enrolled agents since April to provide free tax advice by phone and through online chat. That includes the team of 26 advisers from around the country that Alleva manages. Alleva is a CPA and has worked for Intuit as an adviser for three years.

“I was getting questions from folks out in Idaho who had a farm and wanted to know about farm income,” said Alleva during a January interview at his home in Westbury, New York. “I’m in New York here. Ask me about stocks, not farms. The interesting thing is I had to answer their question so I had to learn about that on the fly and that’s what a lot of our agents have to do.”

Work From Home

TurboTax advisers generally work from their homes and also may have their own tax-preparation business, said Alleva. They receive an average of two calls an hour and inquiries range from tax treatment of retirement income to cancellation of debt, he said. Those taking calls answer questions rather than prepare returns, said Kirkendall, the spokeswoman. All of them have tax preparer identification numbers from the IRS, she said.

The IRS has required paid preparers since 2011 to register with the government and receive an identification number, or PTIN, that must be renewed annually. Those who aren’t licensed attorneys, CPAs or enrolled agents generally also will have to pass a competency test by the end of 2013 and complete continuing education courses starting this year, the IRS said.

An enrolled agent is a person who has earned the right to represent taxpayers before the IRS by either passing a three-part comprehensive test or through experience as a former IRS employee.

Phone Support

TaxAct, another tax preparation software maker, offers free phone support to customers if they pay upfront for the product instead of when filing, said Jessi Dolmage, a spokeswoman for the company. The company’s online deluxe product for federal returns costs $9.95, she said.

A federal ruling in October prevented H&R Block from proceeding with a proposed acquisition of TaxAct products because the judge said it would diminish competition in the market. Instead InfoSpace Inc. in Bellevue, Washington, acquired the maker of the software in January.

While do-it-yourself may cost less, using a tax preparer helps ensure that individuals don’t miss credits or deductions that could result in a larger refund, said Turtledove of H&R Block. The average refund for all taxpayers in 2011 was $2,913, compared with $3,003 in 2010, IRS data show.

“There’s a huge difference between tax advice and tax prep,” he said. “It’s not just phone-a-friend.”

Video Conferencing

H&R Block prepared about 15 million returns in its stores last year, said Gene King, a spokesman for the company. Tax-preparation companies may pay interest and penalties if there’s a mistake on a return and agree to assist customers if they are audited. IRS rules state that individuals are ultimately responsible for the accuracy of their returns even if they use a preparer.

In addition to having preparers in its stores this season, H&R Block designated about 1,000 workers to do returns for customers through video conferencing online, Turtledove said. While all the company’s tax professionals don’t have to be attorneys, CPAs or enrolled agents, new hires are required to complete more than 110 hours of training, Turtledove said. The cost for having a return prepared through video conferencing is similar to the pricing in stores, he said. H&R Block also offers online do-it-yourself tax software.

“There’s always going to be a market for people who want to do it themselves,” said Mark Steber, chief tax officer for Parsippany, New Jersey-based Jackson Hewitt. “As our tax code continues to be complex and more complex, there will be a need to have someone help you.”

Refund Loans

While Intuit and H&R Block are promoting their free advice or video conferencing, Jackson Hewitt, which has kiosks in about 2,800 Wal-Mart stores, is seeking to attract customers by continuing to offer refund-anticipation loans. Bank regulators and the IRS have cracked down on the loans, known as RALs, which are secured by an individual’s expected tax refund with annualized interest rates that may run as high as 149 percent, according to the National Consumer Law Center in Boston.

Jackson Hewitt, which emerged from bankruptcy in August, and Liberty Tax Service, which has 2,000 franchisees nationwide, have agreements with the last remaining bank company to finance the refund loans this season. Republic Bancorp Inc. in Louisville, Kentucky, reached a settlement with the Federal Deposit Insurance Corp. in December to cease making RALs after April.

That makes this tax season the final one in which loans will be available on a large scale, said Chi Chi Wu, an attorney at the National Consumer Law Center. London-based HSBC Holdings Plc and New York-based JPMorgan Chase & Co. previously exited the business.

Free File

Taxpayers who file electronically and have direct deposit may get their refunds in as few as 10 days, according to the IRS. The agency deployed a program in January generally for people earning $50,000 a year or less to help them prepare their own returns using online software. At participating sites IRS-certified volunteers are available to assist with tax questions and computer problems, the IRS said.

The government has teamed up with various software providers to help qualifying taxpayers access its Free File program and e-file their federal returns without charge.

“Many people would like to try software,” said Maurer of TurboTax. “It’s inherently less expensive than going to a tax store.”

To contact the reporter on this story: Margaret Collins in New York at

To contact the editor responsible for this story: Rick Levinson at

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