WASHINGTON (CN) – The U.S. government demanded an injunction in District Court on Monday to block H&R Block from acquiring the makers of TaxACT, a leading digital do-it-yourself tax preparation software provider.
As more and more Americans file their taxes themselves with the help of electronic software, the Justice Department says H&R Block’s acquisition of TA IX’s subsidiary 2SS Holdings would lessen competition in a growing market, causing higher prices and reduced innovation.
About a quarter of the 140 million Americans who filed taxes last year did so using digital products, according to the complaint.
“In the U.S. Digital DIY Tax Preparation Product market, the three largest firms service approximately 90% of all consumers,” the government claims, noting that H&R Block and TA IX represent the second and third largest providers.
Intuit, which makes Turbo Tax, is the biggest and is not a party to the government’s lawsuit.
In an October 2010 transaction valued at $287.5 million, H&R Block agreed to buy 2SS Holdings TA IX, which created TaxACT and calls itself a “maverick” in the business, according to the complaint. The company started out by offering the same do-it-yourself (DIY) products for free or significantly lower prices.
“In contrast to Intuit and H&R Block, TaxACT (1) does not charge an additional amount to its customers to e-file their state returns, and (2) does not attempt to sell users additional features after purchase,” the complaint states. “Internally commenting on these features, one H&R Block employee stated: ‘ouch! They knew exactly what to exploit.'”
The proposed acquisition sounded the death knell of such aggressive competition, the government says.
“TaxACT has aggressively competed with H&R Block in the Digital DIY Tax Preparation Product market for over a decade,” the complaint states. “That competition has resulted in product innovations and lower prices that have benefitted the millions of U.S. taxpayers who use Digital DIY Tax Preparation Products. The proposed acquisition would remove this competition, resulting in less innovation and higher prices for consumers. H&R Block’s internal documents acknowledge that acquiring TaxACT would result in the ‘[e]limination of [a] competitor,’ and would allow H&R Block to ‘regain control of industry pricing and avoid further price erosion.'”
The government seeks an injunction against H&R Block, TA IX and 2SS Holdings, alleging violation of the Clayton Act. It is represented by Assistant Attorney General Christine Varney.