Tax Ax

Marsha Marr understood why her boss did not want to write off $2 million he’d spent on a computer program. That would be an admission that H&R Block Services Incorporated was not using the software, that it never would, that the money might as well have been buried beneath Henry Bloch’s beautiful fountain outside Union Station.

But Marr didn’t want her company, the biggest name in tax-return preparation, to make a mistake on its own filing. So on April 30, 2001, she warned a top company accountant that H&R Block might be in danger of committing tax fraud.

Two weeks later, Chief Information Officer Jim Rose told her to find another job, she says. Marr landed as a project manager in Block Financial Corporation with less responsibility, less pay and practically no chance of advancement.

Marr is suing, asking for $5 million: half for emotional distress and half to punish Block for the way it treated her, a supervisor of forty employees and a fifteen-year veteran of the company’s computer department.

Rose had bought the pricey software from California’s Sybase Incorporated to enable Block’s offices worldwide to store local customer information. Then Rose decided to keep customer data at headquarters in Kansas City rather than use the software. But the check to Sybase had already been cashed.

“The bottom line is that we … gave Sybase $2 million and received very little value in return,” says an e-mail from Rose to Sybase. He demanded that Sybase apply the money to other purchases. “Unfortunately, unless Sybase is willing to reconsider, our relationship is over.”

Rose then asked Marr to have company accountants depreciate the software’s cost over three years rather than declaring the $2 million lost in 2001, Marr says in her lawsuit.

If Rose — one of the highest-ranking employees at the country’s biggest tax preparer — knew tax law, he would have known that IRS regulations don’t allow a year-by-year depreciation of unused assets.

And if he considered H&R Block’s own tax returns, he would have realized that taking the full loss in one year would save more in taxes than would spreading it out over time.

Marr told Rose she was uncomfortable with his instructions, then took her concerns to corporate controller Cheryl Givens. “I expressed to Ms. Givens my opinion that the remaining $2 million value of the asset needed to be written off, so as to avoid any issues of tax fraud or fraudulent statements on H&R Block’s income tax returns,” Marr says in her lawsuit.

Givens agreed that the $2 million should be written off in 2001, and she sent an e-mail on May 4, 2001, telling Rose that the accounting department would do so immediately unless Rose documented an arrangement with Sybase that would “support leaving the $1.1 million asset on the books.”

Marr is not sure how the expense was ultimately recorded and reported. Rose’s strategy would have made his departmental expenses and the company’s financial picture look better to H&R Block’s stockholders. In the 2001 annual report, that picture looked pretty good. The company hauled in more than $3 billion in revenue and had $281 million in net profit, nearly $30 million more than the year before.

In its legal response, H&R Block denies Marr’s story. Spokeswoman Linda McDougall says, “We believe the remaining claims are without merit. We are defending the company vigorously.”

To earn protected “whistle-blower” status under Missouri law, Marr must prove in court that she reported a violation of the law and that she was fired because she came forward with the violation. Block’s attorneys argue that Marr was not discharged because, though she lost her job, she remains with the H&R Block group of companies.

On January 17, Circuit Judge Thomas C. Clark said there was enough evidence to proceed with the wrongful-discharge claim, but he dismissed the wrongful-demotion portion of Marr’s suit.

Speaking of demotions, Block’s 2001 annual report doesn’t list Rose’s name among the company’s executive officers. Though still a senior vice president, he is now a regional supervisor of tax operations, company spokeswoman McDougall says.