H AND R BLOCK <HRB> SEES GAINS FROM TAX REFORM
With the April 15 tax return deadline
less than a month away, confused taxpayers will be converging
on H and R Block Inc's offices to interpret the new tax codes.
    Financial results for the nation's largest tax preparer are
expected to be good in fiscal 1987 but next year could be a
"bonanza," analysts say.
    "For the short term the key word is confusion, Block Vice
President Tom Bloch said in an interview. "When Congress
drastically changes laws, confusion results and tax preparers
benefit," Bloch said.
    "Next year, when taxpayers take the new forms and place
them side by side to compare them, more people will throw their
hands up and say 'I'm going to get help,'" he said.
"Tax forms will look very different next year," he added.
    Kidder Peabody analyst Herbert Buchbinder expects Block's
fiscal 1987 year (to end April 30) to show good gains over
fiscal 1986 earnings of 60.1 mln dlrs or 2.41 dlrs a share on
revenues of 606.7 mln dlrs. He estimates Block's fiscal 1987
earnings at 2.75 to 2.80 dlrs.
    "Next year, Block could have a bonanza," Buchbinder said.
Based on estimates of a larger work force, Block could show a
gain of more than five pct in tax forms prepared, he said. In
the 1986 tax season, Block prepared 9,215,300 U.S. tax returns,
up 1.5 pct over the previous year.
    The Internal Revenue Service estimates about 100 mln
individual income tax returns will be filed for the 1987 tax
season, up from last year's 94 mln forms. Professional tax
preparers accounted for just over 43 million forms, according
to the IRS.
    For the longer term, while confusion will continue to bring
clients into Block's 8,866 tax preparation offices worldwide,
there are some changes in the act that will have a negative
effect, Bloch conceded.
    Certain changes in filing requirements will shorten the tax
return, and in some cases, simplify the form, he noted. In
addition, some low income wage earners will be taken off the
tax rolls, he said.
    Block is currently analyzing its price structure to try to
offset some of the negatives. Last tax season, the average cost
for each return in the U.S. amounted to 48.05 dlrs and 45.73
dlrs worldwide, Bloch said. This tax season, rates will be up
about three or four pct, in line with the inflation rate, he
said.
    Block expects "some expansion" this tax season of its
electronic filing system which directly feeds into the IRS and
can speed up the refund process. Block can choose where and by
how much it wants to expand into the seven cities made
available for the direct filing by the IRS, Bloch noted.
    The IRS estimates about 90,000 returns will be directly
filed this tax season, up from the 26,000 returns injected in
the 1986 tax season.
    First Kansas City analyst Jonathan Braatz said that Block
will benefit greatly from lower tax rates in fiscal 1988.
    Braatz expects Block's advertising budget to be about the
same as last year which will be helped a bit by lower costs for
television ads. "They may get a little more bang for their
buck," he said.
    He estimates Block has about 150 mln dlrs cash on its
balance sheet sheet, and says if interest rates rise it could
be of great benefit to them.
 Reuter
