Cover Story : Brilliant Deductions Are Their Specialty : Tax preparation: Triple Check Income Tax Service may be the Avis of the industry. But its emphasis on tailoring returns has proved lucrative.
David W. Lieberman, president of Triple Check Income Tax Service, has made no secret of his desire to steal away some of the “zillions” of taxpayers who patronize industry leader H & R Block Inc. every year.
Although Triple Check officials joke about stealing customers away from Kansas City-based Block, they also know that at best Triple Check can only claim to be the Avis of the tax-preparation business.
Still, Triple Check, which has actually been in business longer than Block, is doing very nicely. The privately held company expects to generate $5 million this year in franchise fees and royalties from 325 Triple Check offices in 42 states, the Virgin Islands and London.
By comparison, Block reported $729 million in revenues for 1993, said Harry Buckley, president of H & R Block Services Inc. Block, which began doing business in 1955, has 8,043 tax offices throughout the United States, he added.
“Yes, we have room for growth,” deadpanned Triple Check Marketing Director Richard Tyler.
Depending on which figures are used, Triple Check is either the second- or third-largest tax-preparation company behind Block. Jackson Hewitt Inc., based in Virginia Beach, Va., has 882 offices and took in about $11 million in revenues in 1993, mostly from franchise fees, said founder and Chairman John T. Hewitt. “Business is great. We expect to have about 1,000 franchises by 1995,” Hewitt said.
However, all of Triple Check’s offices, which are mostly franchises, reported a combined $27 million in sales in 1993, while Jackson Hewitt offices, which are a combination of company-owned and franchise outlets, reported $26 million in sales for the same year.
Lieberman, former tax counsel for MCA Inc., and a small group of investors purchased Triple Check in 1969 for $500,000. The company, which was founded in 1941 with a single office in Bellflower, consisted of six offices in Los Angeles and Orange counties when Lieberman and his group acquired it.
Besides the corporate headquarters, the company only owns two offices in Hemet and Sun City, near Riverside. The rest are franchises. Block has a large number of company-owned offices in addition to franchises.
In a recent interview at Triple Check’s modest corporate offices in Burbank, Lieberman explained the company’s marketing strategy. “It’s simple. We don’t try to out-Block Block,” he said, meaning they chase after a narrower customer base.
*
Industry officials expect about 110 million individual tax returns to be filed this year. Traditionally, individual taxpayers prepare about 50% of the returns filed each year, said IRS spokesman Keith Kimball in Los Angeles.
Buckley expects H & R Block to prepare more than 20% of the 55 million or so tax returns prepared by professionals this year. In 1993, Block prepared about 13 million returns, Buckley said.
Triple Check’s Tyler said there has not been much growth for his company during the past two years because in a recession more people try to save money by doing their own taxes. As for the Northridge earthquake, Tyler said the only impact on Triple Check has been that more customers have postponed filing their returns.
Lieberman said he expects Triple Check offices to prepare about 130,000 returns this year. Hewitt said his company, founded in 1982, prepared about 394,000 returns in 1993 and predicted that Jackson Hewitt offices will prepare about 550,000 returns this year.
“If you go by the number of returns, it’s no contest” between Block and Triple Check, Lieberman said. “But if you talk about the specialized service we offer our clients, there’s no comparison.”
Instead of trying to attract customers from across the board like Block, Triple Check has managed to carve out a niche among taxpayers who earn between $40,000 and $80,000 annually. Industry officials said Block’s traditional client base is among middle- to low-income taxpayers.
According to Lieberman, Triple Check’s tax-preparation fee averages $160, while Block’s average fee is $56, Buckley said. In addition, he explained, a large number of tax returns prepared by Block offices are the 1040 short form that does not require taxpayers to itemize deductions.
Most of the tax returns prepared by Triple Check offices are more complex itemized returns, reflecting the higher fees charged by Triple Check. Each return is prepared from itemized work sheets drawn for specific occupations, literally from rocket scientist to clergyman.
“The work sheets are geared to ask every possible question in the language of that person’s occupation. We try to find every legal deduction for our clients. When you come to Triple Check, you will bare your soul to me and tell me everything about the past 12 months,” Lieberman said.
“Nobody resists answering our questions, because everyone wants to pay less taxes,” he added. “They tell us everything about deaths, births, divorces and mistresses. Some people get to deduct their mistresses.”
Unlike Block, which has advertisements running almost nonstop on television from January to April, Triple Check does very little advertising. Instead, it relies heavily on client referrals and the company’s high client-retention rate.
According to Lieberman, some Triple Check offices have retention rates as high as 95%. Overall, the industry’s retention rate is about 80%, said Tyler, Triple Check’s marketing manager.
“Client loyalty is the amazing thing about this business, but the hardest part about it is that 50% of Americans prepare their own returns. The remaining 50% are a very tough breed to convert if they aren’t already your clients,” Lieberman said.
One thing Triple Check has so far refused to offer its customers is electronic filing, as Block and other tax-preparation firms do. Lieberman thinks that the extra fees for electronic filing are not worth the slight speedup in getting a refund.
However, Triple Check is not just a tax-prep business. The company also provides accounting and financial consulting to individuals and small businesses. For a monthly fee of between $100 and $200, Triple Check provides monthly bookkeeping services along with financial statements to show how revenues are being disbursed.
The company also has a hot line for use by Triple Check offices to research tax laws and regulations for franchisees.
