Fights Brew in the Tax Prep Industry

H&R Block and TurboTax battle over ads and winning over customers.

Man and Woman get into a heated argument
By + More

In terms of excitement, tax preparation usually ranks just above sock-folding. But a knock-down, drag-out fight is brewing between two of the country's top tax prep firms as the latest tax filing season heats up.

H&R Block has filed suit in a U.S. District Court against Intuit, the parent company of tax prep company TurboTax. The suit alleges that a recent TurboTax ad campaign falsely implies that H&R Block tax preparers are not well-trained professionals who specialize in tax preparation. In the ads, H&R Block clients encounter their preparers working second jobs in other occupations, such as sales clerks and plumbers.

At the end of January, the judge ruled against H&R Block's request for a temporary restraining order that would have pulled the ads from the air. Still, the court has yet to rule on the injunction against Intuit that H&R Block is seeking.

The ads in question hinge off of the fact that H&R Block's tax preparers are not all CPAs, tax attorneys, or enrolled agents—people authorized to represent taxpayers before the IRS. However, a spokesman stresses that all H&R Block tax experts go through training courses and have varying levels of internal certifications. TurboTax, meanwhile, says that its tax experts are all CPAs, enrolled agents, and tax attorneys.

[SLIDESHOW: 10 Bizarre Tax Deductions]

"We clearly struck a nerve, and they have responded aggressively," says Julie Miller, director of public relations at TurboTax. "We stand behind those ads, the factual claims made in them."

H&R Block, however, maintains that its employees receive a thorough education.

"These are very much professional tax professionals that get training. We have some of the highest standards in the industry of training," says Gene King, director of H&R Block's corporate communications. A statement from the company says that the average client "is served by a tax professional who has more than a decade of experience and hundreds of hours of training."

Still, it's true that there are plenty of employees from both companies with time for a second job in the off-season. A tax year that centers around April 15 means that many tax-preparation workers are seasonal. H&R Block, which operates both an at-home online tax preparation service and offices nationwide, has around 11,000 storefronts open during tax season but only 4,000 year-round. King, H&R Block's spokesman, declined to comment on how many of the company's 90,000 peak-season "tax professionals" are employed during the less busy months. TurboTax, which does not have storefronts, roughly triples its workforce during the tax season, from around 500 to 1,500, not counting technical support staff, according to Miller, the company spokeswoman.

[COMMENTARY: U.S. Should Adopt a Value-Added Tax]

The fight over the ads is ultimately a small battle, but the fierceness of the fight is indicative of the tough competition for customers in the tax preparation marketplace. TurboTax was an early leader in the tax-preparation software business, but H&R Block has followed suit with its own at-home tax prep software. As of last year, TurboTax maintains a lead over H&R Block in returns prepared: in 2012, TurboTax did 25 million returns. H&R Block did 22.3 million, including 7.4 million done via software. Together, they account for roughly one-third of the more than 140 million tax returns filed annually.

H&R Block differentiates itself from TurboTax by offering both in-store and online tax prep options. Still, for all the fighting, one expert says that many at-home preparation options from a variety of companies are roughly comparable.

"A lot of people are very happy with the various tax software programs out there, and [the programs] have become so well-done by all the manufacturers. They tend to walk you through it." says Kay Bell, contributing tax editor at Likewise, many tax prep services have similar guarantees on their services—for example, paying for any mistakes that they (or their programs) make and getting customers maximum refunds.