Federal Court Pulls The Plug On Digital Tax Preparation Merger

A federal judge in the United States District Court for the District of Columbia has granted the United States’ motion for a permanent injunction enjoining H&R Block’s proposed acquisition of its digital tax preparation competitor, 2SS Holdings, Inc., the company offering TaxACT.

Judge Howell’s order in United States v. H&R Block, Inc., Civ. No. 11-00948 (BAH), unequivocally found that the proposed acquisition violates Section 7 of the Clayton Act.  The court based its decision on evidence including “documents and factual and expert testimony presented at an evidentiary hearing, the applicable law, and the parties’ legal memoranda and arguments ….”

Although the Memorandum Opinion containing the court’s reasoning has been filed under seal to allow the parties to redact confidential information, the result is plain: H&R Block and 2SS are to remain distinct entities.

The proposed acquisition was entered into on October 13, 2010.  H&R Block agreed to pay $287.5 million in cash for 2SS.

In a complaint filed in May 2011, the U.S. Department of Justice (“DOJ”) alleged that the three largest companies in the digital do-it-yourself tax preparation products market “service approximately 90% of all consumers,” and that the proposed acquisition of 2SS by H&R Block would create a duopoly by uniting the second and third largest providers.  The DOJ named Intuit, Inc., maker of TurboTax, as the industry leader.

In defining the relevant product market, the DOJ claimed that because “[t]here are no reasonable product alternatives” to digital do-it-yourself tax preparation products, the product market should exclude “pen-and-paper” tax preparation or other services that offer tax preparation assistance, such as the H&R Block storefronts.

Ultimately, the court was persuaded by the DOJ’s arguments and enjoined the merger.

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