Tax Strategies, Inc.

NY CPA’s Blasts H&R Block for Deceptive Advertising

By David Cho, published by NYSSCPA.ORG

NEW YORK (March 22, 2001)--The New York State Society of CPAs is blasting tax preparation giant H&R Block for airing misleading ads implying that the company's tax preparation services are superior to those of CPAs.

Citing the ads claiming that Block prepares "more complex tax returns than any CPA firm in America" as misleading and detrimental to consumers, Society President P. Gerard Sokolski sent a letter to New York State Attorney General Eliot Spitzer last week asking the state's top attorney to investigate the ad's claims.

"We would appreciate an investigation into this matter as quickly as possible," Sokolski wrote. "This campaign is saturating the New York market during the time of year when consumers are choosing their tax preparers."

Spitzer, whose recent actions have included the indictment of 20 defendants in a $50 million boiler room stock fraud scheme, has not yet commented on the Society's request.

Block is no stranger to defending the claims of its ads in court, having lost a recent case brought by Liberty Tax Services in a false advertising case in Virginia. The judge held in the Liberty case that Block acted "willfully, maliciously and in bad faith" by portraying its no additional charge refund anticipation loan program as a tax refund.

Federal Judge Raymond Jackson ruled that the advertising for Block's Rapid Refund service in Virginia last year was deceptive and awarded rival tax preparer Liberty Tax Services damages in the amount of $506,000 plus legal fees.

The media took the opportunity to criticize Block's business practices. "What's really sad is that Block's Rapid Refunds, which sometimes carry annual percentage rates as high as 500 percent, deliver money just a few days faster than the Treasury Department's electronic payment service" said SmartMoney.com's Robert Hunter earlier in the month. "Talk about gouging the needy."

While the accuracy of its claims are in dispute, Block's advertising seems to be effective. The company reported net profits of $5.6 million, or 6 cents a share, for the quarter ending Jan. 31, which compared favorably with its $7.1 million loss (7 cents a share) during the same period a year ago. The company attributes the gain to unexpected third quarter profits reflecting taxpayer use of its services earlier in the year.

Block beat Wall Street expectations, which predicted a loss of 20 cents per share, according to research firm First Call/Thomson Financial, and is also beating its software rival, Intuit, which announced a cut in third-quarter and 2001 sales estimates last week because of lower-than-expected earnings on accounting software.

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