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Originally published Saturday, January 26, 2008 at 12:00 AM

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H&R Block begins tax season in midst of company's subprime, leadership woes

H&R Block, the nation's largest tax preparer, kicked off its annual tax-return season earlier this month, hoping to take the focus off...

The Associated Press

KANSAS CITY, Mo. — H&R Block, the nation's largest tax preparer, kicked off its annual tax-return season earlier this month, hoping to take the focus off its troubled subprime-mortgage arm and boardroom intrigue — at least for a little while.

"Our company is clearly rededicated to our heritage of preparing taxes," Alan Bennett, the company's interim chief executive officer, told the scores of employees gathered at the corporate headquarters in downtown Kansas City.

Bennett, brought in after Chairman and CEO Mark Ernst stepped down in November amid changes on the board of directors, said last-minute tax changes by Congress would likely leave more taxpayers scratching their heads and looking for the company's help.

"As in the past, major tax-law changes or additional tax complexity is good for us," he said. "I know H&R Block is fully prepared for a truly solid tax season in 2008."

Company officials are just happy to turn the focus back on H&R Block's core market after eight long months of talk about its collapsing Option One Mortgage subsidiary.

H&R Block last year served 19.9 million tax clients through its network of retail offices, online or through its TaxCut software, a 3.8 percent increase over 2006. Most of the increase came from the digital side as retail operations saw a less than 1 percent rise in customers.

Bennett said the company expects another 1 percent to 3 percent gain in clients overall for the year, which starts Friday when the Internal Revenue Service begins accepting electronically filed returns.

The company is trying new things this year to gain back market share from its top two competitors, Jackson Hewitt Tax Service and Liberty Tax Service, as well as tax software developer Intuit.

H&R Block struggled for most of 2007 with an increase of borrower defaults at Option One, which lent money to people with spotty credit. After a plan to sell the company to Cerberus Capital Management fell though last month, H&R Block shuttered most of the subsidiary's operations, shrinking it from more than 3,000 employees at the start of the year to 800.

The turmoil cost Ernst his job as shareholders replaced three members of the board of directors with dissident shareholder Richard Breeden and two colleagues.

Breeden, who replaced Ernst as chairman, had criticized the company's strategy of branching out into mortgage lending, investment advice and banking, saying it took away from the core tax business.

Bennett, who is serving until the company finds a permanent replacement, said he is reviewing all of the company's operations and doesn't have a timetable for determining whether to prune the corporate tree.

"My focus is on making all of those businesses better," he said. "A very logical [step from] that is to say if the tax business is our core business then how do these businesses help our core?"

Copyright © 2008 The Seattle Times Company

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