Newspaper article THE JOURNAL RECORD

Overhaul of Tax System Bad News for Tax-Preparation Firms

Newspaper article THE JOURNAL RECORD

Overhaul of Tax System Bad News for Tax-Preparation Firms

Article excerpt

NEW YORK - As they struggled to sort out the likely effects of the newest proposal to overhaul the American tax system, some investors jumped to one quick conclusion: It was bad news for the tax-preparation business.

The stock of H&R Block Inc., the dominant company in the industry, fell swiftly from the record high of 44 1/2 it set in April to the upper 30s.

At first glance, traders concluded, there were several negatives for tax return preparers like Block in the measure approved by the Senate Finance Committee.

Several million lower-income people would be removed from the tax rolls altogether. Those who still filed would be operating under an apparently simpler system, with fewer deductions.

And perhaps most important of all, the incentive for do-it-yourself tax filing would be increased, since tax-preparers fees, like most other ""miscellaneous'' items, would no longer be deductible.

For long-time owners of Block shares, the recent decline was a familiar experience. There has been talk of the need for tax ""reform'' for many years now, and just about every time the subject has been raised, Block shares have taken at least a brief hit.

But those who held on have been rewarded nicely. From a price of 7 1/2 (adjusted for a recent 2-for-1 split) in 1976, the chart of Block stock shows a long climb. It had a particularly good year in 1985, rising 73 percent while the Standard & Poor's 500-stock composite index gained 26 percent.

Is this time different? Maybe, say Wall Street analysts, but the potential impact of the bill on Block's fortunes isn't as simple as it might look.

Henry Bloch, the company's chief executive, said a detailed study of what the bill might mean for the company was being conducted, and he did not yet have the results.

However, he said he was not deeply worried about its impact. …

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