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Weak Economy, But Smooth Tax Season

Other than the fact that the number of tax returns filed with the Internal Revenue Service are down by 2.9 percent through March 12 and that two major preparation chains shared in that hit, the 2009 tax season looks like a success in one respect--tax software has worked even if a lot of taxpayers haven't, the major factor in the filing decline.

And there don't appear to be reports of major problems with any of the packages, whether professional or consumer, as the tax season enters its final phase, and a very important one as those with balance-due returns start filing in greater numbers. "This year has been extremely smooth with our business tax deadline just ending. It was very smooth and we performed stronger than last year," says Angela Askew, product manager for CCH's ProSystem fx Tax. That smoothness, she continues has extended to the 1040 product. The Internet got increasing use in a number of areas, even if Web-based preparation isn't yet the norm for professional preparers. CCH's Global fx Tax, which will be sunsetted in a year or so, saw significant growth, while its next generation tax product is in the market in a limited test. Askew says the company found its new chat area for support to be extremely well received. CCH has also enabled users to enter their own support tickets and track them on line.

The story was much the same at Thomson Reuters where Scott Fleszar, senior director of marketing, says there were probably more issues about law changes than about software. That included calls about the first-time homebuyer credit. Beyond that, the Web has also gained use among purchasers of the company's UltraTax CS.

"We saw more use of portals and more use of Web-based organizers," says Fleszar. The company has found organizer use increasing because firms that used portals were looking at more ways to utilize those and drove clients to them. Thomson's source document processing usage, via which preparers transmit scanned documents to Thomson, is also exploding although the new service is still used by a small percentage of clients. However, the number of documents handled daily has regularly surpassed the number processed for  tax season 2009.

The season has not been so smooth for two of the three top tax chains, in part because the weak economy has driven some consumers away from stores to preparing their own returns, increasingly via Web-based software.

H&R Block reported the number of returns prepared at its sites fell by 6.3 percent for the tax season through March 15, although the total rose by 4.3 percent for March 1 through March 15. Jackson Hewitt Tax Services, the second largest chain, has not issued a tax season update, but predicted the number of returns it prepared would be down 17 to 19 percent for the season when it reported results for its third quarter ended January 31.

The winner in this battle has been Intuit's TurboTax, whose unit sales were up 10 percent through March 10 because of the explosion in its online version, whose unit sales were up 20 percent for the same period.

The exception to the struggle at the chains was Liberty Tax, whose CEO John Hewitt says as of yesterday that the number of returns prepared were up 8 percent over last year to date, but that's way down from double-digit increases the prior two tax years. Recessions produce a predictable pattern as those getting refunds seek them earlier and those owing taxes file later and this year has been no exception. "I think we are going to get back to normal next year," he comments.

This year hasn't been normal for another reason and that was the status of the market for Refund Anticipation Loans.  The Office of the Comptroller of the Currency, forced Santa Barbara Bank & Trust Co. ought of the refund lending business in December and preparers scrambled to find lenders. Jackson Hewitt's business took a beating after it got funding for only half its loan volume. The company may be at the mercy of its lenders since it expects to violate loan covenants.

Observers thought regulators would pull the off switch, especially after Republic Bank, which is providing is funding 100 percent of Liberty Tax's RALs and 50 percent of Jackson Hewitt's, was summoned to a meeting with the Federal Deposit Insurance Corp. in February. But that meeting was postponed to March and so was the end of RALs when the OCC issued a new policy statement in February that provided new rules for how RALs are marketed and delivered.

There will be RALs and there will be some great provisions for the national players," says Hewitt. However, he expects that for the 2011 season, the OCC's new rules will hurt mom-and-pop preparers and favor the chains. The national banks monitored by the OCC would have to monitor and check all advertising. Hewitt, who said the Federal Deposit Insurance Corp. appeared ready to bar that state banks it regulates from the RAL business will now yield to the OCC rules.

The OCC expected its new policies would be implemented partially this year with full implementation next year in areas requiring changes to forms. An area likely to affect consumers is the requirement that marketing make it clear that RALs are loans and are not simply fast refunds. It requires background checks on tax preparers and that the banks monitor preparer practices and agreements that prohibit them from imposing higher fees.


Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
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