H&R Block said Thursday that the IRS’s inability to accept certain tax return filings prior to Feb. 14 led to changes in taxpayer filing patterns this year, with a delayed start to tax season, and declines in the number of tax returns prepared through Jan. 31.

However, the tax prep chain reported that the volume declines in January were more than offset by strong unit growth in February.

Total tax returns prepared at Block through Feb. 15 grew 2.5 percent compared to the prior year. Total digital tax returns increased 7.3 percent, including a 27.6 percent increase in online filings. Total retail returns prepared increased 0.5 percent for the period, contrasted with losses in the comparable periods in each of last several years, the company reported.

For the Feb. 1 to Feb. 15 period, total retail and total online returns prepared grew 17 and 32 percent, respectively. This trend has continued through the balance of the month to date, according to Block. From Feb. 1 to Feb. 22, total retail and total online returns prepared increased 17 and 39 percent, respectively.

"After the industry-wide slow start to the tax season and despite the absence of a refund anticipation loan product offering, we have seen strong momentum throughout February," said H&R Block's president and CEO Alan Bennett in a statement. "Our early-season client growth initiatives have proven to be very effective, and clients have accepted less expensive financial products in the post-RAL world. We have a lot of work ahead of us in the second half of the season, but I am very pleased with our focused execution, effective marketing, and the exceptional service our tax professionals and support staff have provided our clients to date. Reversing recent trends, we saw our client base grow in the first half of the season and believe we have gained share in both the retail and online markets."

Total digital returns in Block’s strategically important online segment grew 27.6 percent through Feb. 15. The company said its marketing campaign has proven to be effective in driving new traffic to its Web site and conversion rates have improved, resulting in new online client growth (excluding Free File Alliance clients) of 46.2 percent. The strong growth in online filings was partially offset by a 10.4 percent decline in software-based returns and a 16.0 percent decline in FFA. Total digital tax returns, including online, software and FFA returns, increased 7.3 percent. Total digital returns excluding FFA returns increased 11.0 percent.

Primarily as a result of strong new client growth resulting from this year's free federal 1040 EZ offer and the IRS delay in accepting certain forms prior to Feb. 14, Block said its retail net average charge declined 8.0 percent through Feb. 15. Excluding 1040 EZ returns and fees, the adjusted NAC increased 2.9 percent versus the prior year. For the full fiscal year ending April 30, 2011, the company anticipates its NAC will be down 1 to 3 percentage points compared to the prior year, primarily due to the success of its 1040 EZ promotion.

The company's efforts to promote early season filings led to retail new client growth of more than 23 percent on a day-to-day basis through Feb. 22, and growth of more than 46 percent in the Feb. 1 to Feb. 15 period. The company offered clients refund anticipation checks, a lower-cost financial product compared with the controversial refund anticipation loans that the IRS has made it more difficult for Block and other tax prep chains to offer this season by eliminating the debt indicator. Through Feb. 22, more than 4.6 million, or 57 percent, of the company's retail tax clients established a RAC account, according to Block.

The company expects to report revenues of approximately $850 million and near break-even net earnings from continuing operations for the fiscal third quarter ended Jan. 31, 2011. This reflects the industry-wide slow start to the tax season and approximately $20 million of revenue deferral related to the IRS' delay in accepting certain forms. Those revenues will be recognized in the company's fiscal fourth quarter. In addition, the company recorded pretax charges of approximately $38 million, largely due to goodwill impairment at an ancillary tax business, as well as incremental legal expense.

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