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H&R Block’s biggest competitor, Jackson Hewitt Tax Service Inc., is warning of some potentially serious financial issues.
The Parsippany, N.J., company said in a filing with the Securities and Exchange Commission that pre-packaged bankruptcy is an option if it can’t restructure the credit lines that help sustain the business between tax seasons.
Jackson Hewitt is the second-largest tax preparer in the United States, behind Kansas City-based H&R Block.
Currently, Jackson Hewitt’s credit agreement contains covenants requiring it to maintain a fully financed refund anticipation loan (RAL) program. Hewitt has not been able to comply because bank regulators recently declared RAL lending as an unsafe and unsound practice, shutting down RAL credit lines that banks provided to tax preparers such as Jackson Hewitt and H&R Block. The change was related to the Internal Revenue Service no longer issuing a debt indicator to let tax preparers know if a refund would be intercepted to cover debts, such as back child support or defaulted student loans.
