How A Shortcoming In Turbo Tax Can Save H&R Block

Funny story written by anthonyrosania

Wednesday, 11 August 2010


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The color green writes, "Dear (Insert name of this week's H&R Block CEO here); I quit."

H&R Block hasn't grown its business in 14 years; it's lack of response to Turbo Tax's innovative business model guaranteed this. And Block's ill-conceived decision to artificially maintain profitability in the face of declining market-share by raising prices at a rate 450 times greater than inflation has soured a once-loyal client base, driving them to tax preparation providers that are clearly inferior.

Nevertheless, it is a particular inferiority in the competitors' product that Block must exploit, lest their corpse be buried in a pauper's grave, next to other failed once-giant American corporate deities.

And whichever H&R Block executive who wishes to may have their name etched in marble under a bronze bust, created in their image, to be displayed in the soon-to-be bustling lobby of a company brought back from the brink of death by starvation and neglect. "Like Iacocca for Chrysler, or Lampert for Kmart, (executive) delivered H&R Block from Hell's Precipice" the plaque will read.

I imagine the executive dramatically bursting in on a Board meeting, interrupting the speaker, and writing three words on the whiteboard behind them.

"This," the executive will say, pounding the whiteboard for effect. "THIS. Is the answer."

The words: Offers In Compromise.

Question One: You owe me $19,824. You respond by...

A:) Paying me $19,824, making us square.
B:) Paying me $10,307, making us square.
C:) Ignoring me, hoping that I go away.
D:) Saying, "You can't get blood from a turnip, f--ker."

The answer, of course, is either "C" or "D".

At least, that is how the nation's tax delinguents have been responding for years: By either burying their indebted noggins in their tax-lein encumbered topsoil, or defiantly trying to fight City Hall, as it were, even though City Hall can take your paycheck, drain your checking account, force the sale of anything you own that has curtains, a steering wheel, or some value on eBay, and/or kick in your front door, level an M-16 at your wife's head, and force your now-handcuffed ass into the back of a car whose back doors don't open from the inside.

And since it's better for the IRS to have your money instead of a big pile of certified mail receipts for all the "Notice of Indebtedness" letters they've sent you, the legislature developed the Offer in Compromise (OIC) program.

OIC allows qualified individuals with an unpaid tax debt to negotiate a settled amount that is less than the total owed to clear the debt, making answer "B" to Question One a viable alternative.

Indeed, 26 U.S.C. ยง 7122 happily provides that The Uncle gettin' somethin' rather than nuttin' is groovy when it is "in the best interests of both the qualified taxpayer and the government and promotes voluntary compliance with all future payment and filing requirements."

Does it work? Hells, yes.

According to the Taxpayer Advocate Service 2007 Annual Report to Congress, the IRS collected 17 cents for every $1 owed through accepted Offers in Compromise in fiscal year 2007. In the past, IRS research shows they collected on 3 cents for every $1 owed on two-year-old debts and virtually nothing on debts three or more years old.

Is there a Catch? No!

Ha!! It's the IRS Code, silly. Of-f--king-course there's a catch: The word "qualified".

To paraphrase 26 U.S.C. 7122 et. seq.:

At least one of three conditions must be met to qualify a taxpayer for consideration of an OIC settlement:

Doubt as to Liability - The debtor can show reason for doubt that the assessed tax liability is correct. In other words, maybe the IRS'll walk out of Tax Court holding their asscheecks with empty hands. And zero dollars is less gooder than some dollars.

Doubt as to Collectability - Debtor can show that he or she is, and likely will continue to be, the proverbial blood-less turnip, rendering even a provable IRS debt "likely uncollectable in full by the IRS under any circumstances."

Effective Tax Administration - The catch-all IRS analog to the criminal Courts' "In the Interests of Justice": Debtor does not contest liability or collectability but can demonstrate how life has f--ked them over so thoroughly that the collection of the debt would "create an economic hardship or would be unfair and inequitable."

And speaking of things analogous to criminal law, does everyone see what the Law and Order version of Offers in Compromise is?

Offers in Compromise: The indebtedness Plea Bargain.

In the season two episode of Law and Order entitled "The Wages of Love", Jerry Orbach played a defense attorney, two years before he joined the cast as smartass detective Lenny Briscoe.

For those of us who can not divorce Orbach the actor from Briscoe the gumshoe, the episode couldn't be more unbelievable if Homer Simpson played the District Attorney.

However, as in all 42,832 that followed, episode 2x04 had the obligatory scene in which the defense attorney divines just how strong the case is against their client, and what, if any, kind of exchange-a-guilty-plea-for-mercy deal is on the table.

Orbach delivers the funniest line ever uttered by an Esquire on the show: "It's called plea bargaining, Ben. Not plea scalping."

Those familiar with L&O's first ten years remember DA Adam Schiff, played by his generation's most underrated actor, Steven Hill.

If an A.D.A. prosecuting a case had the murder weapon, twenty witnesses, a video of the crime, a signed confession, and means, motive and opportunity, Schiff would still try to discourage a trial: "You still don't have a sworn statement from your defendant's great-grandmother. Find out what they want and cut them a deal."

Frustrating, it seemed, but in the mind of an elected official whose job-rating can closely be tied to conviction percentage, a plea bargain saves the expense of a trial, still puts a check-mark in the WIN column, and serves the public's desire to see people get punished for doing sh-t that they ain't oughta.

Most importantly, it takes absolute power away from the biggest, most unpredictible wild-card in the deck: A jury. Or, in the case of a bench trial, a Judge.

These same evils hang like swords of Damocles above both debtors and the IRS when they enter tax court. While the IRS usually has little trouble establishing that a taxpayer owes some taxes, the amount that is owed is largely subject to interpretation. The provable value of a business, as an example, may make the difference between a debtor owing $1,000 and owing $100,000.

If you can "plea bargain" a repayment of $35,000, payable in 30 days, without the risk of a trial, why the hell not do so?

Therein lies the value of Offers in Compromise.

Offers in Compromise: It's a complicated process.

The following exchange of letters, while totally fictional, could occur:

"Dear IRS: I owe you $15,000. I'd rather not pay that much, 'cuz I like it better when my money stays with me. so I want to offer you $10,000 in compromise. Please tell me where to mail the 10 Gs."

"Dear Taxpayer: F--k you."

As stated above, the desire to pay less than owed, while understandable, is not a criterion for qualifying for an OIC. It is doubt in amount owed, the ability to repay, or the undue hardship which has to be proven.

And it is the taxpayer's responsibility to prove the qualifier(s).

The Offer in Compromise program ain't for the faint-of heart, or those not familiar with the process. And it ain't going to be done in a weekend: it will take at least six months, and could take as much as two years.

Offers in Compromise: Pro-se? No WAY!

A man who renewed a rental car by phone one time was unceremoniously arrested by cops two days later, when the local office reported the car unreturned (and therefore stolen).

The man could prove that the rental company f--ked up with credit card receipts, and called the District Attorney's office to clear it up.

"We don't discuss plea bargains with defendants," the prosecutors office claimed.

"But, this was a mistake," the man said. "I don't have a lawyer."

"Well, if it was a mistake, go hire a lawyer, and we'll discuss it with them."

"What if I want to represent myself," asked the man, incredulous.

This sentence ended the call: "Then we'll see you at trial."

And, the fact is, the prosecutors were right. If you want to negotiate the end of a legal proceeding, hire representation.

Which leads us to...

Offers in Compromise: How H&R Block can make a Sh-tload of dough.

The problems that may force H&R Block to sell it's crappy waiting room furniture at a Bankruptcy-Court-ordered yard sale exist exclusively at the green building at One H&R Block Way in Kansas City.

The H&R Block Tax Professionals who are charged with not only completing tax returns for clients in compliance with Federal Law are, in fact, some of the most knowledgable, educated and experienced professionals in the tax business.

(The fact that they are forced to sell products like Peace of Mind extended-warranties, and Refund loans that'd embarrass a loanshark is a testament to their leaders' idiocy, not their own.)

And many of them are enrolled agents, licensed by the IRS to represent clients in any IRS proceeding, just as CPAs and tax attorneys are.

So, what does H&R Block do?

1.) Advertise: Think of all of those "pennies of the dollar" ads you've seen. Nobodies like JK Harris and Roni Deutch created a business out of the change in IRS laws, via their retail-level Offers in Compromise business. (Kinda sounds like Harry and Richard Bloch did in Kansas City when the IRS allowed third parties to complete 1040s.) How did they build this new business? Advertising! "Are you indebted to the IRS? Contact us, and we'll make it so you pay pennies on the dollar.

Block still has the biggest client base in the country. Why didn't they leverage it to own the Offers in Compromise business? Because stupid is as stupid does.

2.) Stay Open Year-Round to support the OIC business: Block rents property for more than 10,000 tax prep offices nationwide. They pay this rent 12 months out of the year. And how many of these offices generate cash year-round? Like, 13. Block has the bandwidth to build their OIC business; eventually staffing each and every office year-round could make sense.

Why hasn't Block found a way to make money in their offices year-round, if for no other reason than to support their clients who may need their services, if not make sure the Brand isn't as irrelevant as Santa Claus 9 months out of 12? Dunno: they're smart people, but stupid is as stupid does.

3.) Consolidate the OIC Market: Tax preparation used to be a completely consolidated sub-industry, all under the Block. Now, the Green Titanic shares a heavily fragmented marketplace with at least two national chains, a software juggernaut in Turbo Tax, and thousands of "Dave's Deli and Tax Preparation" stores, causing retailer blight on dirty streetcorners nationwide.

What does "stupid is as stupid does" mean? It means that one or more intelligent people who do stupid things are still stupid, for practical purposes. You are what you do.

There are three types of retail subsectors: Consolidated, where one or two national chains dominate; Semi-fragmented, where locals and nationals co-exist, and fragmented, where moms-and-pops thrive. Laundromats are fragmented: Can you think of a national coin-op retailer? Pizza restaurants are semi-fragmented: Pizza Huts and Dominos co-exist with Guiseppi's on da corner. And Blockbuster --and later Netflix and Redbox-- completely consolidated movie rentals.

If H&R Block could destroy the business Deutsh and J.K. Harris created, and reinstill the value of trust in the Block Brand, HRB could move toward consolidating the tax preparation industry. There is no company --none better situated, anyway-- to do this successfully.

Why hasn't Block (---Insert the solution to idiocy set forth above here---)? Dunno: they're smart people, but stupid is as stupid does.

4.) Remind the world that TurboTax can't represent you in front of the IRS. That cool orange box did something H&R Block hasn't been able to do since the Roosevelt Administration; Shift a sh-t of tax preparation clients into a new way of competing that ugly document mailed to the IRS every year. They beat Block at the game they invented. How? By doing it with greater perceived value.

But here is where perception diverges from reality: Because Turbo Tax completed your return, you could prop their install CD up in a chair next to you at your next Audit, but it might not argue its way out of your current situation. And that is when the prodigal sons and daughters scribble "Prepared by Turbo Tax" off of their copy of the 1040, and march into a Block office.

It happens. A lot.

And the sooner the public is made aware that this condition not only exists, but occurs often, the sooner H&R Block can reinvent itself as the Twelve-Month-A-Year, full service tax preparation and IRS F--k-up Fixing Service.

And the sooner it'll stop having to rent out part of its home office, or hire a new CEO twice a year, or drive their field leaderships' resumes onto sites like Monster and CareerBuilder by the dump truck-full.

And why haven't they done so? Dunno: they're smart people, but stupid is as stupid does.

The funny story above is a satire or parody. It is entirely fictitious.

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