April Isn't the Cruelest Month for Tax Man Henry Bloch; It's Time for Many Happy Returns
updated 03/24/1980 AT 01:00 AM EST
•originally published 03/24/1980 AT 01:00 AM EST
Eight months a year, the Kansas City-based Block organization loses money. But in January, February, March and April, a cascade of black ink flushes the red from its ledgers. Amid a crescendo of whirring pencil sharpeners and ticking adding machines, Block's nationwide staff grows 30-fold, from 1,375 to more than 40,000—a transient army of part-time tax experts: housewives, clerks, bus drivers, ex-IRS agents, and moonlighting firemen and cops. Last year more than 10 million returns were processed on the specially designed forms provided in some 8,445 Block offices in the U.S. and abroad. Fees averaged $25 and accounted for almost 70 percent of the company's 1979 income of nearly $200 million.
Business is so good, in fact, that H&R Block (the "R" is Henry's brother Richard, the company's co-founder and chairman) has all but saturated the tax-preparation market. Now the firm is expanding into other areas, including computer services, insurance and door-to-door delivery of advertising circulars, in an effort to continue growing. Its stock, nearly 30 percent family-owned, has split repeatedly since the company incorporated in 1955, and there are now more than 11 million shares outstanding. Bloch, meanwhile, never stops urging his fellow Americans to do for themselves what they pay to have done for them. "People really should fill out their own returns when they can, because it'll teach them a lot about their own economics," he says. "There's nothing like getting into your own tax return for teaching you where your money is going."
Fortunately for the Block company's bottom line, millions of taxpayers prefer sweet oblivion to the agony of contemplating the flight of their dollars. Helping them over the hurdles in the annual paper chase netted H&R Block a handsome pretax profit of more than $55 million last year. Henry's share, in salary and dividends, came to well over $200,000—not bad for an ex-bomber navigator who wanted to be a math teacher and isn't even a certified public accountant.
A native of Kansas City, Bloch grew up in a stern but loving Jewish household. His paternal grandfather had come West as a guide with Kit Carson. His mother's family were Wollmans, who founded a Manhattan brokerage firm and built the Central Park skating rink that still bears their name. Bloch's father was both devoted and demanding, a lawyer who refused to accept any partners into his practice because the responsibilities would have interfered with his family life. Each year he insisted on taking three months' vacation with Henry and his brothers, Richard and Leon. He gave generously of himself and countenanced no disobedience. "When it was time for dinner," Henry remembers, "he'd come to my room, say, 'Come downstairs,' turn out my light and walk out. No matter what I was doing, I was expected to walk out behind him."
Bloch's mother, now 86, leavened her husband's brusqueness with a gentle manner of her own, slipping the boys extra pocket money without letting him know. Her greatest desire, says Bloch, was for her sons to stick together in life. When Henry, an excellent student, dropped out of the University of Michigan to enlist in the Army Air Corps during World War II, she threatened to move heaven and earth to prevent him from becoming a pilot. "So I decided to become a navigator," Bloch remembers. "Mother didn't really know what a navigator was, but in her mind it wouldn't be as dangerous as being a pilot." Subsequently he flew 31 European bomber missions without a scratch, receiving the Air Medal and three Oak Leaf Clusters.
After the war, to please his mother, he spent an unsatisfactory year as a stockbroker. "I felt I was wasting my time," he recalls. "I was investing what money I had, and losing it." (Now he invests almost exclusively in tax-free municipal bonds.) Then he recalled a speech by a former Harvard professor lamenting the plight of small businessmen. "He said they were really the backbone of the country," Bloch remembers, "but overworked and under-rewarded. Big business and labor could take care of themselves, he said, but small businessmen needed help badly." Bloch was determined to serve a purpose in life; at that moment he believed he had found it. He and his brothers asked a wealthy aunt for a $50,000 gift, settled for a $5,000 loan, and founded the United Business Company.
It was a struggle. "Every morning Leon would take one side of a street and I'd take the other," Bloch recalls. "We'd go from business to business telling them, 'We'll take over your inventory, your collection work, your legal work, your accounting, anything you want.' But they didn't want much. We couldn't get any clients. Then a man who owned a hamburger stand told us he'd let us do his books. He was the first."
Eventually word spread that the Blochs were dependable. Soon they began doing individual tax returns for some of their customers. "We didn't really want to. It was just an extra service," says Henry. "In those days, the IRS was still helping people with their returns." But lines were long at government offices, and people preferred to pay the Blochs a few dollars to avoid the inconvenience of waiting. That was the trouble, Henry decided: The dollars were few and the hours impossible. By 1955 Leon had left the business to practice law, and Henry and Richard decided to stop doing individual returns once and for all. But before they could quit, one of their customers talked them out of it. "Before you give up doing taxes," he asked them, "why don't you really get into the business?" He suggested they buy two $100 newspaper ads offering to fill out tax forms for everyone. "We hadn't really thought about it, but my brother Dick said, 'Let's give it a gamble,' " says Henry. "So we ran the ads."
Their timing was, to say the least, fortuitous. "We didn't know then that the IRS was trying to get out of preparing tax forms for people, and Kansas City was the first place they were going to try it," Bloch recalls. "We did $25,000 in business that first year. It was like winning a poker game with a royal flush. Dick and I would smile all day, and every night we'd go home with a roll of bills."
Thus was born H&R Block. (The brothers agreed on the slightly altered spelling in order to make the company easier to find in the phone book.) Then, in 1956, the Blochs learned that the IRS planned to halt federal tax form assistance in New York. Henry flew East in October, frantically recruited preparers, and rented storefront space near local IRS offices. The brothers decided to use the same strategy in various cities, but didn't want to leave their hometown.
"Then a lucky thing happened," says Henry. Two Manhattan accountants with less cash than enthusiasm offered the Blochs $10,000 down and a percentage of their New York gross. "They became, in effect, our first franchise," says Bloch, "though at the time we didn't know what a franchise was." Now about half the Block offices are franchises, and the company has paid millions of dollars to buy some of them back.
En route to his status as income tax entrepreneur, Henry Bloch managed to come up with some attractive personal exemptions. His copper-haired wife, Marion, whom he married in 1951, was a childhood friend's pigtailed kid sister. "I had my eye on him for years," laughs the vivacious grandmother of two. "He's a very fine, honorable person, and he has a very even disposition despite the fact that he's a perfectionist. His ability to concentrate," she adds, "is absolutely unreal. When he brings home a briefcase and gets into it, you could yell 'Fire!' as loud as you want and he wouldn't look up." Over the years, of course, Bloch's concentration on business hasn't been total. He and Marion have four children: Robert, 27, an art student and aspiring gallery owner who has persuaded his father to become a collector; Thomas, 26, a Block vice-president in tax preparation; Mary Jo, 24, a housewife; and Elizabeth Ann, 20, a student at the University of Missouri at Kansas City.
Despite his years of experience with form 1040 and others, Block approaches his own tax return as a labor of love, following procedures that breathe an aura of rite. On the first Saturday in April, he repairs to an antique desk in the den of the columned, Colonial-style brick house he built 15 years ago in a nearby suburb. From a drawer, he takes a foot-long gray metal box, with votive reverence. This he carries to the maroon Mercedes parked near his swimming pool and the tennis court carved out of a hillside. From there it is an easy 15-minute drive to his Persian-carpeted office in downtown K.C. He opens the box, in which are arranged his year's records with flawless precision, and begins his annual accounting of debits and credits.
"Always wait until the deadline to file," he counsels, "because you'll think of other deductions along the way or hear about new regulations. And mail your return as close to deadline as possible, in case you remember something you forgot to include." Bloch's own return is always audited; he expects it, given the nature of his business. While others view the tax code as chaos, he sees it for what it is—a great mutation, constantly changing and adapting, like some pulsating fiscal amoeba. What the casual critic calls "loopholes"—tax breaks to encourage the building of low-income housing, for example—Bloch regards as carefully calculated attempts to stimulate the economy and bring about social change. "The difference between taking advantage of such loopholes and tax fraud is like the difference between the lightning bug and lightning," he says. "Most so-called loopholes are really for the average person, and those are the people we should be most interested in helping."
Obviously, Bloch would not be in business if the tax code weren't as complex as it is, but he believes there are better reasons for opposing sweeping revision. "Simplification is like motherhood," he argues. "When a politician says he's for it, nobody wants to argue, but we'd better find out what he wants to simplify. The tax laws aren't perfect. I'm not saying that. But we can't have a four-line return like some people think—not if we're going to help people over 65 or the man who makes a lot of money one year and hardly anything the next."
Though Bloch is sympathetic to pleas that taxes should be lowered, he believes that inflation must first be controlled. "Some politicians are talking about 'indexing' taxes," he observes. "By indexing, they mean that as inflation pushes us all into higher brackets, our tax rates would be adjusted downward. That's bad—nothing but a quick fix that will get us into trouble in the end. It puts us into a situation of accepting inflation, taking away all incentives to fight it."
Personally as well as professionally, Bloch has never stopped fighting that battle. "Success hasn't gone to his head," observes his son Tom with a grin. "Neither has his wealth. We laugh at him sometimes when we all go out to dinner. He always adds up the check before he pays."