U.S. Department of Justice Files Lawsuit Against H&R Block
Written by Faith Anderson on May 26, 2011
H&R Block, Intuit and TaxACT, Leaders in Do-It-Yourself Tax Preparation
For now, Intuit Inc. of Mountain View, California, is the leader in tax preparation software sales, followed by H&R Block and TaxACT, respectively. By removing TaxACT from the picture, H&R Block would effectively eliminate a strong rival of both H&R Block and Intuit, the maker of such tax preparation software as TurboTax and Quicken.. However, according to the Department of Justice, H&R Block’s acquisition of TaxACT would curb competition in the U.S.’s rapidly growing do-it-yourself tax preparation software market, potentially leading to an increase in prices and a decrease in product quality.
It is estimated that 40 million taxpayers use digital software like TaxACT and TurboTax to file taxes, and, as the current market stands, Intuit, H&R Block and TaxACT together account for 90% of total tax preparation software sales in the United States. TaxACT was launched by 2nd Story Software in 1998 and was the first company to offer free e-filing opportunities with the purchase of their products. According to TaxACT owners, the online business has assisted with more than 19 million electronically filed federal tax returns since 2000, including more then five million in 2010 alone. In comparison, H&R Block prepared more than 23 million tax returns worldwide last year, netting an annual revenue of $3.9 billion. H&R Block believes the acquisition of TaxACT would provide the company with “innovative growth-oriented leadership to accelerate [their] digital tax offerings and results.”
H&R Block Proposes Acquisition of TaxACT Software
H&B Block’s announcement last October included plans to pay $287.5 million in cash to acquire 2SS Holdings, a move which would leave only two major competitors in the do-it-yourself tax preparation market. According to H&R Block plans, the company would combine its H&R Block At Home digital business with the TaxACT business into a single unit led by TaxACT management, but would continue to sell both brands. H&R Block has taken the stance that the proposed acquisition “makes sense, is pro-competitive and will greatly benefit consumers.” The Department of Justice, however, believes this deal would create an opportunity for H&R Block and Intuit to corner the market on do-it-yourself tax preparation, coordinating on prices, product quality, and other business decisions to the detriment of American consumers.
Department of Justice Antitrust Lawsuit Against H&R Block
Antitrust laws in the United States are intended to discourage unfair business practices and anti-competitive behavior. These laws are regulated by the Antitrust Division of the Department of Justice and the Federal Trade Commission. Assistant Attorney General Christine Varney has stated that the Department of Justice is blocking the H&R Block and TaxACT transaction because the proposed merger would substantially decrease competition in the tax preparation software market, leading to higher prices, reduced innovation and lower quality of digital tax preparation products. In response to the lawsuit, H&R Block president and CEO has accused the Justice Department of making a “determination to stifle smart business growth” and rejecting guarantees that H&R Block would not raise TaxACT prices.
How the Proposed H&R Block and TaxACT Merger Can Adversely Affect Consumers
Do-it-yourself tax preparation software like TaxACT has become an increasingly significant factor in the tax market, used by more than one quarter of taxpayers to file federal and state taxes in the most recent tax season. Reflecting on the ways that TaxACT has pushed the envelope in the past, including forcing competitors to match its free e-filing options and lower prices, the Department of Justice believes that H&R Block’s acquisition of TaxACT would eliminate head-to-head competition between the two companies. The government believes that the proposed merger would result in too much consolidation in the marketplace, leading to fewer options for consumers. With fewer tax preparation companies left to compete, there is a significant probability of higher prices, a decrease in innovation and a reduction in quality for tax preparation products used by millions of American taxpayers every year. The Department of Justice believes the interests of consumers are better served in a competitive marketplace; by filing an antitrust lawsuit against H&R Block, the government agency seeks to prevent unfair competition in the digital tax preparation market.