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Jackson Hewitt sues H&R Block over ads

NEW YORK (Reuters) – Jackson Hewitt Tax Service Inc sued H&R Block Inc to stop a new advertising campaign that it said misleads customers about tax refund loans and disparages Jackson Hewitt's competence.

The lawsuit comes on the eve of the main U.S. tax filing season, a crucial period for the largest U.S. tax preparation companies because the February-to-April quarter generates the bulk of their annual revenue and profit.

H&R Block did not immediately respond to a request for a comment.

According to the complaint, filed Monday in the U.S. District Court in Manhattan, both companies provide "refund anticipation loans" to taxpayers who want access to expected refunds within eight to 15 days, in exchange for a fee.

Jackson Hewitt said that unlike its larger rival, it also offers taxpayers access to as much as $1,500 within one day.

Last month, H&R Block suffered a setback when the U.S. Treasury Department's Office of the Comptroller of the Currency ordered a partner, HSBC Holdings Plc, to stop making tax refund loans to H&R Block customers.

To negate its disadvantage, according to the complaint, H&R Block is falsely claiming that its "Second Look Review" service found that two-thirds of prior tax returns prepared by Jackson Hewitt contained mistakes.

"H&R Block's 2 out of 3 claim necessarily implies the false claim that two out of three Jackson Hewitt customers who are entitled to refunds have been short-changed due to Jackson Hewitt errors or incompetence," the complaint said.

Jackson Hewitt also said H&R Block gives its agents a script designed to deceive them about its loan service.

Saying the ad campaign is causing "irreparable harm," Jackson Hewitt is seeking to halt the alleged improper ads. It is also seeking compensatory and punitive damages.

Jackson Hewitt said it prepared 2.53 million U.S. tax returns in 2010 H&R Block prepared 20.1 million U.S. returns in its 2010 fiscal year. H&R Block is based in Kansas City, Missouri, and Jackson Hewitt in Parsippany, New Jersey.

In morning trading on the New York Stock Exchange, Jackson Hewitt shares rose 1 cent to $1.58, and H&R Block shares fell 3 cents to $12.47.

The lawsuit is Jackson Hewitt Inc v. H&R Block Tax Services LLC, U.S. District Court, Southern District of New York, No. 11-00641.

(Reporting by Jonathan Stempel, editing by Gerald E. McCormick and John Wallace)