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H&R Block's third strike

Tax-filing season is also peak IRA season.

Some people use a traditional IRA to help reduce their current tax bills. Others want the tax savings on the back end, so they opt for a Roth and it's tax-free distributions in retirement.

And every account holder, regardless of the IRA type, wants to get as much money as they're allowed to contribute or can afford into the accounts by April 17, the 2005 contribution deadline.

Whatever your motivation to save, it's all good. Just be sure that you put your hard-earned money into an appropriate -- and potentially profitable -- plan.

Hrblock_bldg_2 That means you probably should steer clear of H&R Block, at least according to the Attorney General of New York, who has filed a lawsuit against the company in connection with its Express IRA offering.

It definitely has not been a good tax season for H&R Block. As I noted in earlier posts, the company shipped out samples of its TaxCut software with recipients' Social Security numbers printed on the label, a major blunder in this age of rampant identity theft. Then its accountants muffed H&R Block's corporate tax return, costing the company $32 million in taxes.

And now this.

Eliot_spitzer_mug_1 Eliot Spitzer, who always seems to be on a crusade, has the nation's largest tax services firm in his sights. In a civil lawsuit filed yesterday, the NY AG alleges that H&R Block defrauded more than half a million customers by selling them fee-heavy retirement accounts that ended up costing more than they earned.

According to the suit, which seeks $250 million in damages, the typical customer earned less than $30,000 and was saving for the first time, which prompted this statement (reported by the Washington Post) from Spitzer:

"H&R Block misled investors about the fees. This is a blatant violation of law. The outrageous nature of this misrepresentation is magnified by the fact that the most vulnerable members of our society were being ripped off."

H&R Block officials say that the Express IRA did indeed appeal to a large number of people who previously had not saved money. But the company defended the retirement savings plan, saying it offers customers the "ease and convenience of beginning to save at a time when clients are about to receive a lump sum of cash via their tax refund."

TaxProf's crack staff has made my blogging easier; the blog has posted links to Spitzer's press release (which, in turn, has links to the court filing itself), H&R Block's press statement in response and several media sites that have published stories on the lawsuit.

Slow down: I think the folks at H&R Block need to consider decaf when they come up with new products. They seem to keep getting tripped up by financial and tax services that promise speed.

OK, the word "fast" doesn't actually appear in the company's online pitch of the IRA. But c'mon. The name. Express. Look at the definitions.

As a verb it means "to send by special messenger or rapid transport."

As an adjective it connotes something "sent out with or moving at high speed; direct, rapid, and usually nonstop … [or] of, relating to, or appropriate for rapid travel."

What else are people supposed to think?

Express IRA joins another H&R Block product that's been under fire since its inception, Rapid Refund. The company changed the name of that program after complaints (and lawsuits) argued that it obscured the fact the money a customer received was a loan based on an expected refund amount.

And, being a loan, it contained interest charges. Often times exorbitant interest charges for a very short-term loan.

In H&R Block's defense, American's need for speed makes them willing customers for programs like Rapid Refund. And sadly, many times they want the money quickly so they can buy extravagances like big-screen TVs.

So there's enough blame to go around here.

The upshot: Every company needs to be clear about what they're offering and why, be it a tax service with a refund-related product or a car dealer encouraging you to bring your W-2 down to the lot and use your estimated refund as a down payment.

And consumers need to be smarter about what they're getting and honest with themselves about why they're buying it in the first place.

TODAY'S TAX TIP: Not sure which IRA is right for you? This story details the advantages of a traditional account; this one looks at the benefits of a Roth.

And as for that refund, why are you getting such a big one anyway?

Overwithholding is bad, bad, BAD! You've been giving the federal government free use of your money all year. You should have had control of that cash, making it earn money for you, not the U.S. Treasury.

Yes, that means you have to have some self-discipline and financial restraint. It is a challenge, but it's not impossible. You're an adult. You're making the money. Gut it up and manage it.

Head to your payroll office and change your withholding so that you start getting control of you money ASAP.

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