THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, February 22, 1995 TAG: 9502220425
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
LENGTH: Medium: 56 lines
Jackson Hewitt Inc., the Virginia Beach-based tax service, on Tuesday said it expects to report a sharply higher loss for its fiscal third quarter because of problems in its tax-refund loan business this year.
Those problems are partly the result of changes in IRS refund policies this tax season, the company said.
Jackson Hewitt, the nation's second-largest tax service behind H&R Block Inc., said it expects to post a net loss of $700,000, or 18 cents a share, for the quarter ended Jan. 31. In the year-earlier period, the tax service lost about $15,000, or 3 cents a share.
The latest expected loss includes $525,000 that Jackson Hewitt said it will have to pay Chemical Bank to help cover delinquencies on refund-anticipation loans. These loans are made by tax services and their affiliate banks to taxpayers who are expecting refunds. Customers get their money, minus fees paid to the tax preparers and banks, within a couple of days - instead of having to wait two weeks or more for payment by the IRS.
But a few weeks into the tax season, the IRS drastically changed the way it processes many of the returns claiming refunds this year. Jackson Hewitt and Chemical Bank found that a greater-than-usual number of customers to whom they'd lent money were having their refunds delayed because the IRS is checking closer for fraud.
Now, tax services and their banks are faced with having to collect loans from many customers who didn't deserve refunds in the first place. And they'll have to track down other customers who not only got a refund loan but the refund, too - because the IRS has said it will send all refunds that are delayed this year straight to taxpayers themselves.
Jackson Hewitt said in its statement Tuesday that it eliminated the riskiest of its refund-anticipation loan practices Feb. 3. It said it believes fees from loans made from February through the end of the tax season will be profitable enough to cover its loss on the loans in January.
John T. Hewitt, Jackson Hewitt's president, said that the tax service's 1,220 stores, most of which are operated by franchise owners, had prepared 405,000 returns from the start of the tax season through Sunday. That was up about 13 percent from the same period last year, when Jackson Hewitt had 878 stores.
But Hewitt said that individual offices had experienced, on average, a decline in the number of returns prepared.
Jackson Hewitt typically loses money in the first three quarters of its fiscal year, then more than covers the losses with a profit in its fiscal fourth quarter ending in April. Hewitt said in an interview last week that he expected Jackson Hewitt's profit for the full fiscal year to be higher than last year.
The company's stock dropped 50 cents a share, to $5.50, in Tuesday trading on NASDAQ's National Market System. by CNB