(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

One H&R Block Way

Kansas City, Missouri 64105

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD SEPTEMBER 6, 2007

The annual meeting of shareholders of H&R Block, Inc., a Missouri corporation (the “Company”), will be held at the Copaken Stage of the Kansas City Repertory Theatre in the H&R Block Center located at One H&R Block Way (corner of 13th Street and Walnut), Kansas City, Missouri, on Thursday, September 6, 2007 at 9:00 a.m., Kansas City time (CDT). Shareholders attending the meeting are asked to park in the H&R Block Center parking garage located beneath the H&R Block Center (enter the parking garage from Walnut or Main Street). The meeting will be held for the following purposes:

The foregoing items of business are more fully described in the proxy statement accompanying this notice. The Board of Directors has fixed the close of business on July 5, 2007 as the record date for determining shareholders of the Company entitled to notice of and to vote at the meeting.

All shareholders are cordially invited to attend the annual meeting. Whether or not you expect to attend the meeting in person, we urge you to complete, sign, date and return the enclosed WHITE proxy card as promptly as possible in the postage-paid envelope provided, or to vote by telephone or Internet. Telephone and Internet voting information is provided on the WHITE proxy card. If you are present at the meeting and desire to vote in person, your vote by proxy will not be counted.

Please note that Breeden Partners L.P. (“Breeden Partners”) has provided notice that it intends to nominate at the annual meeting, and to solicit proxies for use at the annual meeting to vote in favor of, its own slate of three nominees for election as directors, in opposition to Item 1 above. We do not believe this is in your best interest. You may receive proxy solicitation materials from Breeden Partners or its affiliates. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE BOARD’S NOMINEES ON THE ENCLOSED WHITE PROXY CARD. THE BOARD OF DIRECTORS URGES YOU TO NOT SIGN OR RETURN ANY BLUE OR OTHER PROXY CARD SENT TO YOU BY BREEDEN PARTNERS. Even if you have previously signed a proxy card sent by Breeden Partners, you have every right to change your vote by using the enclosed WHITE proxy card to vote by telephone, by Internet or by signing, dating and returning the enclosed WHITE proxy card in the postage-paid envelope provided. Only the latest dated proxy card you vote will be counted. We urge you to disregard any proxy card sent to you by Breeden Partners or its affiliates.

If you have any questions or require any assistance with voting your shares, please contact:

INNISFREE M&A INCORPORATED

SHAREHOLDERS CALL TOLL FREE: 877-456-3463

BANKS AND BROKERS CALL COLLECT: 212-750-5833

Your vote is extremely important regardless of the number of shares you own. Please promptly use the enclosed WHITE proxy card to vote by telephone, by Internet, or by signing, dating and returning the WHITE proxy card in the postage-paid envelope provided.

Kansas City, Missouri

July 30, 2007

H&R BLOCK, INC.

PROXY STATEMENT
FOR THE 2007 ANNUAL MEETING OF SHAREHOLDERS

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING –

The Board of Directors (the “Board of Directors” or “Board”) of H&R Block, Inc., a Missouri corporation (“H&R Block” or the “Company”) solicits the enclosed proxy for use at the annual meeting of shareholders of the Company to be held at 9:00 a.m. (CDT), on Thursday, September 6, 2007 at the Copaken Stage of the Kansas City Repertory Theatre in the H&R Block Center located at One H&R Block Way (corner of 13^th Street and Walnut), Kansas City, Missouri. This proxy statement contains information about the matters to be voted on at the meeting and the voting process, as well as information about our directors and executive officers.

WHY DID I RECEIVE THIS PROXY STATEMENT?

The Board of Directors is soliciting your proxy to vote at the annual meeting because you are a shareholder at the close of business on July 5, 2007, the record date, and are entitled to vote at the meeting. This proxy statement, the accompanying WHITE proxy card and Annual Report to Shareholders for the fiscal year ended April 30, 2007 are being made available to shareholders beginning on or about July 30, 2007. This proxy statement summarizes the information you need to know to vote at the annual meeting. You do not need to attend the annual meeting to vote your shares.

WHAT AM I VOTING ON?

You are voting on three items of business at the annual meeting:

WHO IS ENTITLED TO VOTE?

Shareholders of record as of the close of business on July 5, 2007 are entitled to vote at the annual meeting. Each share of H&R Block common stock is entitled to one vote.

WHAT ARE THE VOTING RECOMMENDATIONS OF THE BOARD OF DIRECTORS?

Our Board of Directors recommends that you vote your shares “FOR” each of the Class III nominees named in this proxy standing for election to the Board, “FOR” the ratification of KPMG LLP as our independent accountants and “AGAINST” the shareholder proposal.

HOW DO I VOTE?

   It is important that your shares are represented at the meeting, whether or not you attend the meeting in person.

   To make sure that your shares are represented, we urge you to vote as soon as possible by signing, dating and returning the WHITE proxy card in the postage-paid envelope provided, or alternately by Internet or telephone by following the instructions on the WHITE proxy card.

If you are a registered shareholder, there are four ways to vote:

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   Your shares will be voted as you indicate. If you do not indicate your voting preferences, the appointed proxies (Henry F. Frigon, David Baker Lewis and Tom D. Seip) will vote your shares FOR items 1 and 2, and AGAINST item 3. If your shares are owned in joint names, all joint owners must vote by the same method and if joint owners vote by mail, all of the joint owners must sign the WHITE proxy card.

   If your shares are held in a brokerage account in your broker’s name (this is called street name), please follow the voting directions provided by your broker or nominee. You may sign, date and return a voting instruction card to your broker or nominee or, in most cases, submit voting instructions by telephone or the Internet to your broker or nominee. If you provide specific voting instructions by mail, telephone, or the Internet, your broker or nominee should vote your shares as you have directed.

   At the annual meeting, we will pass out written ballots to anyone who wishes to vote in person. If you hold your shares in street name, you must request a legal proxy from your broker or other nominee to vote at the annual meeting.

   If your shares are held through the H&R Block Retirement Savings Plan, please follow the voting directions provided by Fidelity Management Trust Company, the Plan’s Trustee. You may sign, date and return a voting instruction card to the Trustee or submit voting instructions by telephone or the Internet. If you provide voting instructions by mail, telephone, or the Internet, the Trustee will vote your shares as you have directed (or not vote your shares, if that is your direction). If you do not provide voting instructions, the Trustee will vote your shares in the same proportion as shares for which the Trustee has received voting instructions, except as otherwise required by law. You must submit voting instructions to the Plan Trustee by no later than September 4, 2007 at 11:59 pm Eastern time in order for your shares to be voted as you have directed by the Trustee at the annual meeting. Plan participants may not vote their Plan shares in person at the annual meeting.

WHAT SHOULD I DO IF I RECEIVE A PROXY CARD FROM BREEDEN PARTNERS?

Breeden Partners L.P. (“Breeden Partners”) has provided notice that it intends to nominate at the annual meeting, and to solicit proxies for use at the annual meeting to vote in favor of, its own slate of three nominees for election as directors. You may receive proxy solicitation materials from Breeden Partners or its affiliates, including an opposition proxy statement and proxy card. THE BOARD OF DIRECTORS URGES YOU NOT TO SIGN OR RETURN ANY BLUE OR OTHER PROXY CARD SENT TO YOU BY BREEDEN PARTNERS. Even if you have previously signed a proxy card sent by Breeden Partners, you have every right to change your vote by signing, dating and mailing the enclosed WHITE proxy card in the postage-paid envelope provided, or by following the instructions on the WHITE proxy card to vote by telephone or by Internet. Only the latest dated proxy card you vote will be counted. We urge you to disregard any proxy card sent to you by Breeden Partners or its affiliates.

MAY I ATTEND THE MEETING?

All shareholders, properly appointed proxy holders, and invited guests of the Company may attend the annual meeting. Shareholders who plan to attend the meeting must present a valid photo identification. If you hold your shares in street name, please also bring proof of your share ownership, such as a broker’s statement showing that you owned shares of the Company on the record date of July 5, 2007, or a legal proxy from your broker or nominee (a legal proxy is required if you hold your shares in street name and you plan to vote in person at the annual meeting). Shareholders of record will be verified against an official list available at the registration area. The Company reserves the right to deny admittance to anyone who cannot adequately show proof of share ownership as of the record date.

WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A SHAREHOLDER OF RECORD AND AS A BENEFICIAL OWNER?

If your shares are registered directly in your name with the Company’s transfer agent, BNY Mellon Shareowner Services, you are considered, with respect to those shares, the “shareholder of record.” The proxy statement, annual report and WHITE proxy card have been made available directly to shareholders of record by the Company.

   If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in street name. The proxy materials should be forwarded to you by your broker, bank or nominee who is considered, with respect to those shares, the shareholder of record. As the beneficial holder, you have the right to direct your broker, bank or nominee how to vote and are also invited to attend the annual meeting. However, since you are not a shareholder of record, you may not vote these shares

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in person at the annual meeting unless you bring with you a legal proxy from the shareholder of record. A legal proxy may be obtained from your broker or nominee. Your broker or nominee has enclosed a voting instruction card for you to use in directing the broker, bank or other nominee how to vote your shares.

WHAT ARE BROKER NON-VOTES AND HOW ARE THEY COUNTED?

Broker non-votes occur when nominees, such as brokers and banks holding shares on behalf of the beneficial owners, are prohibited from exercising discretionary voting authority for beneficial owners who have not provided voting instructions at least ten days before the annual meeting date. If no instructions are given within that time frame, the nominees may vote those shares on matters deemed “routine” by the New York Stock Exchange. On non-routine matters, nominees cannot vote without instructions from the beneficial owner, resulting in so-called “broker non-votes.” Broker non-votes are not counted for the purposes of determining the number of shares present in person or represented by proxy on a voting matter.

   In the event of a solicitation of proxies by Breeden Partners, all proposals on the agenda will be considered non-routine matters for any brokerage accounts solicited by Breeden Partners. As a result, if Breeden Partners or its affiliates provide you with proxy solicitation materials through your broker, your broker will be unable to vote your shares at the annual meeting on any proposal unless they receive your specific voting instructions. Please promptly vote by telephone, by Internet, or sign, date and return the voting instruction card your broker or nominee has enclosed, in accordance with the instructions on the card.

MAY I CHANGE MY VOTE?

If you are a shareholder of record, you may revoke your proxy at any time before it is voted at the annual meeting by:

   If you are a beneficial owner of shares, you may submit new voting instructions by contacting your broker, bank or other nominee. You may also vote in person at the annual meeting if you obtain a legal proxy as described above.

   The Board strongly urges you to revoke any blue or other proxy card you may have returned which you received from Breeden Partners or its affiliates. Even if you have previously signed a proxy card sent by Breeden Partners, you have every right to change your vote by signing, dating and returning the enclosed WHITE proxy card in the postage-paid envelope provided, or by voting by telephone or by Internet following the instructions on the WHITE proxy card. Only the latest dated proxy card you vote will be counted.

WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?

For all matters to be voted upon at the annual meeting, shareholders may vote “for,” “against,” or “abstain” on such matters. The affirmative vote of a majority of shares entitled to vote on the matter and present in person or represented by proxy, is necessary for election or approval. Shares represented by a proxy which directs that the shares abstain from voting or that a vote be withheld on a matter are deemed to be represented at the meeting as to that matter, and have the same effect as a vote against the proposal. Broker non-votes are not deemed to be represented at the meeting, and therefore have no effect on the required vote.

DO SHAREHOLDERS HAVE CUMULATIVE VOTING RIGHTS WITH RESPECT TO THE ELECTION OF DIRECTORS?

No. Shareholders do not have cumulative voting rights with respect to the election of directors.

WHAT CONSTITUTES A QUORUM?

As of the record date, 326,529,658 shares of the Company’s Common Stock were issued and outstanding. A majority of the outstanding shares entitled to vote at the annual meeting, represented in person or by proxy, will constitute a quorum. Shares represented by a proxy that directs that the shares abstain from voting or that a vote be withheld on a matter will be included at the annual meeting for quorum purposes. Shares represented

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by proxy as to which no voting instructions are given as to matters to be voted upon will be included at the annual meeting for quorum purposes.

WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?

If you hold your shares in more than one account, you will receive a WHITE proxy card for each account. To ensure that all of your shares are voted, please complete, sign, date and return a WHITE proxy card for each account or use the WHITE proxy card to vote by telephone or Internet. You should vote all your proxy shares. To provide better shareholder service, we encourage you to have all your shares registered in the same name and address. You may do this by contacting our transfer agent, BNY Mellon Shareowner Services, at 1-888-213-0968.

   As previously noted, Breeden Partners has provided notice that it intends to nominate at the annual meeting, and to solicit proxies for use at the annual meeting to vote in favor of, its own slate of three nominees for election as directors. As a result, you may receive proxy cards from both Breeden Partners and the Company. To ensure shareholders have the Company’s latest proxy information and materials to vote, the Board expects to conduct multiple mailings prior to the date of the annual meeting, each of which will include a WHITE proxy card regardless of whether or not you have previously voted. Only the latest proxy card you vote will be counted.

   THE BOARD OF DIRECTORS URGES YOU NOT TO SIGN OR RETURN ANY BLUE OR OTHER PROXY CARD SENT TO YOU BY BREEDEN PARTNERS. Even if you have previously signed a proxy card sent by Breeden Partners, you have every right to change your vote by signing, dating and returning the enclosed WHITE proxy card in the postage-paid envelope provided. Only the latest dated proxy card you vote will be counted. We urge you to disregard any proxy card sent to you by Breeden Partners or its affiliates.

WHO WILL SOLICIT PROXIES ON BEHALF OF THE BOARD?

Appendix A sets forth certain information relating to our directors and certain officers and employees of the Company who may be deemed to be “participants” in the Board’s solicitation of proxies in connection with the annual meeting under the applicable rules of the SEC.

WHAT IS THE COMPANY’S WEB ADDRESS?

The Company’s home page is www.hrblock.com. You can access this proxy statement and our 2007 annual report at this web address. The Company’s filings with the Securities and Exchange Commission are available free of charge via a link from this address.

WILL ANY OTHER MATTERS BE VOTED ON?

As of the date of this proxy statement, our management knows of no other matter that will be presented for consideration at the meeting other than those matters discussed in this proxy statement. If any other matters properly come before the meeting and call for a vote of the shareholders, validly executed proxies in the enclosed form will be voted in accordance with the recommendation of the Board of Directors.

WHO SHOULD I CALL IF I HAVE ANY QUESTIONS?

If you have any questions, or need assistance voting, please contact our proxy solicitor:

Innisfree M&A Incorporated

Shareholders Call Toll Free: 877-456-3463

Banks and Brokers Call Collect: 212-750-5833

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ITEM 1 –

ELECTION OF DIRECTORS –

The Company’s Articles of Incorporation and Bylaws provide that the number of directors to constitute the Board of Directors shall not be fewer than nine nor more than 15, with the exact number to be fixed by a resolution adopted by the affirmative vote of a majority of the entire Board. Effective April 24, 2006, the Board fixed the number of directors to constitute the Board of Directors at 11. The Articles of Incorporation and Bylaws provide that the Board of Directors shall be divided into three classes: Class I, Class II and Class III, with each class to consist, as nearly as possible, of one-third of the members of the Board. There are currently four Class I directors, four Class II directors and three Class III directors. The term of office of one class of directors expires at each annual meeting of shareholders. Directors elected at an annual meeting of shareholders to succeed those whose terms expire are identified as being of the same class as those directors they succeed and are elected for a term to expire at the third annual meeting of shareholders after their election.

   At the annual meeting of shareholders to be held on September 6, 2007, three Class III directors will be elected to hold office for three years and until their successors are elected and shall have qualified. Donna R. Ecton, Louis W. Smith and Rayford Wilkins, Jr. have been nominated by the Board for election as Class III directors of the Company.

   Unless otherwise instructed, the proxy holders will vote the WHITE proxy cards received by them for each of the nominees named above. All nominees are currently Class III directors of the Company and have consented to serve if elected. The Board of Directors believes that each of the nominees will be able to accept the office of director. If such nominee were not to accept, it is the intention of the proxies to vote for such person or persons as the Board of Directors may recommend.

   The nominees for election as Class III directors, the current Class I directors and the current Class II directors are listed below. Thomas M. Bloch, Mark A. Ernst, David Baker Lewis and Tom D. Seip serve as Class I directors with terms scheduled to expire at the annual meeting of shareholders in 2008. Jerry D. Choate, Henry F. Frigon, Roger W. Hale and Len J. Lauer serve as Class II directors with terms scheduled to expire at the annual meeting of shareholders in 2009. The number of shares of Common Stock beneficially owned by each director is listed under the heading “Security Ownership of Directors and Management” on page 43 of this proxy statement.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE NOMINEES NAMED ABOVE.

NOMINEES FOR ELECTION AT THIS MEETING TO A TERM EXPIRING IN 2010 (CLASS III DIRECTORS):

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CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2008 (CLASS I DIRECTORS):

6 •

CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2009 (CLASS II DIRECTORS):

ADDITIONAL INFORMATION CONCERNING THE BOARD OF DIRECTORS

BOARD OF DIRECTORS’ MEETINGS AND COMMITTEES – The Board of Directors is responsible for managing the property and business affairs of the Company. The Board of Directors reviews significant developments

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affecting the Company and acts on matters requiring Board approval. During the 2007 fiscal year, the Board of Directors held 14 meetings and the standing Board committees held 24 meetings. Each of the incumbent directors attended at least 75% of the aggregate of the total number of meetings of the Board of Directors and of committees of the Board of which he or she was a member.

   The standing committees of the Board include the Audit Committee, the Compensation Committee, the Finance Committee, the Governance and Nominating Committee and the Executive Committee. The Company’s Corporate Governance Guidelines, Code of Business Ethics and Conduct, Board of Directors Independence Standards and charters for the Audit, Compensation and Governance and Nominating Committees are available on the Company’s website at www.hrblock.com under the tab “Company” and then under the heading “Block Investors” and then under “Corporate Governance.” These documents are also available in print to shareholders upon written request to: Corporate Secretary, H&R Block, Inc., One H&R Block Way, Kansas City, Missouri 64105. Set forth below is a description of the duties of each committee and its members.

   The members of the Audit Committee are Mr. Smith (Chairman) and Messrs. Choate, Lauer, Lewis and Seip. The Board of Directors adopted a revised charter for the Audit Committee in February 2007, a copy of which is included as Appendix C to this proxy statement. The functions of the Committee are described in the Audit Committee Charter and include making recommendations to the Board of Directors with respect to the appointment of the Company’s independent accountants, evaluating the independence and performance of such accountants, reviewing the scope of the annual audit, reviewing and discussing with management and the independent accountants the audited financial statements and accounting principles, and reviewing the Company’s internal controls and internal audit matters. See the “Audit Committee Report” beginning on page 16. All of the members of the Audit Committee are independent under regulations adopted by the Securities and Exchange Commission, New York Stock Exchange listing standards and the Board’s Director Independence Standards. The Board has determined that each of Mr. Smith, Mr. Choate, Mr. Lauer and Mr. Lewis is an audit committee financial expert, pursuant to the criteria prescribed by the Securities and Exchange Commission. The Audit Committee held nine meetings during fiscal year 2007.

   The members of the Compensation Committee are Mr. Seip (Chairman) and Messrs. Choate, Frigon, Hale, and Wilkins. The Board of Directors adopted a revised charter for the Compensation Committee in February 2007, a copy of which is included as Appendix D to this proxy statement. The functions of the Committee primarily include reviewing and approving the compensation of the executive officers of the Company and its subsidiaries, recommending to the Board of Directors the compensation of the Company’s chief executive officer, and administering the Company’s long-term incentive compensation plans. All of the members of the Compensation Committee are independent under the New York Stock Exchange listing standards and the Board’s Director Independence Standards. See the “Compensation Discussion and Analysis” beginning on page 17. The Compensation Committee held nine meetings during fiscal year 2007.

   The members of the Finance Committee are Ms. Ecton (Chairman), and Messrs. Bloch, Ernst, Lauer and Lewis. The primary duties of the Finance Committee are to provide advice to management and the Board of Directors concerning the financial structure of the Company, the funding of the operations of the Company and its subsidiaries and the investment of Company funds. A majority of the members of the Finance Committee are independent under the New York Stock Exchange listing standards and the Board’s Director Independence Standards. The Finance Committee held three meetings during fiscal year 2007.

   The members of the Governance and Nominating Committee are Mr. Frigon (Chairman), Ms. Ecton and Messrs. Hale, Smith and Wilkins. The Governance and Nominating Committee is responsible for corporate governance matters, the initiation of nominations for election as a director of the Company, the evaluation of the performance of the Board of Directors, and the determination of compensation of outside directors of the Company. All of the members of the Governance and Nominating Committee are independent under the New York Stock Exchange listing standards and the Board’s Director Independence Standards. The Governance and Nominating Committee held three meetings during fiscal year 2007.

   The members of the Executive Committee are Mr. Wilkins (Chairman), Ms. Ecton and Messrs. Ernst, Frigon, Hale, Seip and Smith. The function of the Executive Committee is to discharge certain of the Board of Directors’ responsibilities between meetings of the Board of Directors and to act on behalf of the Board of Directors when it is impracticable for the entire Board to do so. The Executive Committee held no meetings during fiscal year 2007.

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   DIRECTOR COMPENSATION – The Board considers and determines outside director compensation each year, taking into account recommendations from the Governance and Nominating Committee. The Governance and Nominating Committee formulates its recommendation based on its review of director compensation practices at other companies. Management assists the Governance and Nominating Committee in its review by accumulating and summarizing market data pertaining to director compensation levels and practices. The Governance and Nominating Committee does not utilize consultants in its review of compensation practices or formulating its recommendation regarding director compensation. The Governance and Nominating Committee has authority to delegate its authority to such subcommittees as it deems appropriate and in the best interest of the Company and its shareholders.

   Directors, excluding those who are employed by the Company or its subsidiaries, each received an annual director’s fee of $50,000, meeting fees of $2,000 for each Board meeting attended, committee chairman fees of $2,000 for each committee meeting that they chair, and meeting fees of $1,200 for each committee meeting attended in a capacity other than as chairman. The chairman of the audit committee receives an annual committee chairman’s fee of $7,500, which the audit committee chairman can choose to receive in cash or shares of the Company’s common stock. The presiding director receives an annual presiding director’s fee of $20,000, which the presiding director can choose to receive in cash or shares of the Company’s common stock.

   In accordance with the provisions of the H&R Block Deferred Compensation Plan for Directors, as amended, eligible non-employee directors may defer receipt of their retainers and/or meeting fees. Deferrals are placed in an account maintained by the Company for each director and such deferrals are fully vested at all times. Gains or losses are posted to each account in accordance with the participant’s selection among fixed rate, variable rate and Company Common Stock investment alternatives. Payment of benefits occurs in cash upon termination of the participant’s service as a director or upon his or her death. The account balance is generally paid out in approximately equal monthly installments over a 10-year period after the occurrence of the event which results in the benefit distribution.

   Pursuant to the H&R Block Stock Plan for Non-Employee Directors, as amended, eligible non-employee directors have the opportunity to receive payment of their retainers and/or meeting fees on a deferred basis in shares of Common Stock of the Company. The retainers and/or fees are initially paid in the form of stock units. The stock units in the directors’ accounts are fully vested at all times. Payment of the stock units must be deferred at least one year after the date such units are credited and the director shall select the date of payment, which may be upon termination of service as a director. The maximum number of shares of Common Stock that may be issued under the Stock Plan is currently 600,000 shares.

   The 1989 Stock Option Plan for Outside Directors, as amended, provides for the grant of stock options to directors of the Company who are not employees of the Company or any of its subsidiaries. The Plan specifies that nonqualified stock options are to be automatically granted to outside directors of the Company serving as such on June 30 of each year in which the Plan is in effect. Currently, each stock option granted to an outside director of the Company pursuant to the Plan is for 8,000 shares of the Company’s Common Stock, and the purchase price per share is equal to the last reported sale price for the Common Stock on the New York Stock Exchange on the date of grant. The maximum number of shares of Common Stock as to which options may be granted under the Plan is 1,600,000. The amount of shares of Common Stock for which options may be granted to each outside director of the Company and the maximum number of shares of Common Stock for which options may be granted under the Plan were adjusted to reflect the two-for-one stock split of the Company’s Common Stock on August 22, 2005.

   Options for 8,000 shares each, with an option price of $23.37 per share, were granted to Ms. Ecton and Messrs. Bloch, Choate, Frigon, Hale, Lauer, Lewis, Seip, Smith and Wilkins on June 30, 2007. The options are fully vested and immediately exercisable as of the date of grant. All outstanding options expire ten years after the date of grant.

   The Company also offers to its non-employee directors free income tax return preparation services at an H&R Block office of their choice, a 50% discount on tax preparation services from RSM McGladrey, Inc. and free business travel insurance in connection with Company-related travel. In addition, the H&R Block Foundation will match gifts by non-employee directors to any 501(c)(3) organization up to an annual aggregate limit of $5,000 per director per calendar year.

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   The Board has adopted stock ownership guidelines regarding stock ownership by Board members. The Board membership ownership guidelines provide for non-employee directors to own shares of Company stock with an aggregate value generally exceeding five times the annual retainer paid to non-employee directors.

DIRECTOR COMPENSATION TABLE –

The following table sets forth director compensation for non-employee directors for fiscal year 2007.

NOTES:

CORPORATE GOVERNANCE – Our Board of Directors operates under Corporate Governance Guidelines (the “Guidelines”) to assist the Board in exercising its responsibilities. The Guidelines reflect the Board’s commitment to monitor the effectiveness of policy and decision-making both at the Board level and management level, with a view to enhancing shareholder value over the long term. The Guidelines also assure that the Board will have the necessary authority and practices in place to review and evaluate the Company’s

10 •

business operations as needed and to make decisions that are independent of the Company’s management. The Guidelines are not intended to be a static statement of the Company’s policies, principles and guidelines, but are subject to continual assessment and refinement as the Board may determine advisable or necessary in the view of the best interests of the Company and its shareholders.

   The Guidelines provide that a non-employee director may be appointed as the “Presiding Director” of the Board. The Presiding Director (currently Rayford Wilkins, Jr.) leads executive sessions of the non-employee directors at meetings that are held prior to each regular meeting of the Board, reviews with the Chief Executive Officer the Board’s annual Chief Executive Officer performance evaluation and performs other duties as may be designated by the Board. In addition, the Presiding Director may call executive sessions as deemed necessary.

   As further described in the Guidelines, the Board believes that a substantial majority of the Board should consist of directors who are independent under the New York Stock Exchange listing standards. As described below, nine of the Board’s 11 directors are independent directors within the meaning of the Board’s Director Independence Standards and the New York Stock Exchange listing standards.

   The New York Stock Exchange listing standards provide that a director does not qualify as independent unless the Board affirmatively determines that the director has no material relationship with the Company. The listing standards permit the Board to adopt and disclose standards to assist the Board in making determinations of independence. Accordingly, the Board has adopted Director Independence Standards (attached as Appendix B to this proxy statement) to assist the Board in determining whether a director has a material relationship with the Company.

   In June 2007, the Board conducted an evaluation of director independence, based on the Director Independence Standards and the New York Stock Exchange listing standards. In connection with this review, the Board evaluated commercial, charitable, consulting, familial and other relationships between each director or immediate family member and the Company and its subsidiaries. As a result of this evaluation, the Board affirmatively determined that Ms. Ecton and Messrs. Choate, Frigon, Hale, Lauer, Lewis, Seip, Smith and Wilkins are independent directors.

   Finally, all directors, officers and employees of the Company must act ethically and in accordance with the policies comprising the H&R Block Code of Business Ethics and Conduct (the “Code”). The Code includes guidelines relating to the ethical handling of actual or potential conflicts of interest, compliance with laws, accurate financial reporting and procedures for promoting compliance with, and reporting violations of, the Code. The Company intends to post any amendments to or waivers of the Code (to the extent applicable to the Company’s Chief Executive Officer, Chief Financial Officer or Principal Accounting Officer) on our website.

   DIRECTOR NOMINATION PROCESS – The entire Board of Directors is responsible for nominating members for election to the Board and for filling vacancies on the Board that may occur between annual meetings of the shareholders. The Governance and Nominating Committee is responsible for identifying, screening and recommending candidates to the entire Board for Board membership. The Governance and Nominating Committee works with the Board to determine the appropriate characteristics, skills and experience for the Board as a whole and its individual members. In evaluating the suitability of individual Board members, the Board takes into account many factors such as general understanding of various business disciplines (e.g., marketing, finance, information technology), the Company’s business environment, educational and professional background, ability to work well with other Board members, analytical ability and willingness to devote adequate time to Board duties. The Board evaluates each individual in the context of the Board as a whole with the objective of retaining a group with diverse and relevant experience that can best perpetuate the Company’s success and represent shareholder interests through sound judgment.

   The Governance and Nominating Committee may seek the input of the other members of the Board and management in identifying candidates who meet the criteria outlined above. In addition, the Governance and Nominating Committee may use the services of consultants or a search firm. The Committee will consider recommendations by the Company’s shareholders of qualified director candidates for possible nomination by the Board. Shareholders may recommend qualified director candidates by writing to the Company’s Corporate Secretary, at our offices at One H&R Block Way, Kansas City, Missouri 64105. Submissions should include information regarding a candidate’s background, qualifications, experience, and willingness to serve as a director. Based on a preliminary assessment of a candidate’s qualifications, the Governance and Nominating Committee may conduct interviews with the candidate and request additional information from the candidate. The Committee uses the same process for evaluating all candidates for nomination by the Board, including

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those recommended by shareholders. The Company’s Bylaws permit persons to be nominated as directors directly by shareholders under certain conditions. To do so, shareholders must comply with the advance notice time requirements outlined in the “Shareholder Proposals and Nominations” section of this proxy statement.

   COMMUNICATIONS WITH THE BOARD – Shareholders and other interested parties wishing to communicate with the Board of Directors, the non-management directors, or with an individual Board member concerning the Company may do so by writing to the Board, to the non-management directors, or to the particular Board member, and mailing the correspondence to: Corporate Secretary, H&R Block, Inc., One H&R Block Way, Kansas City, Missouri 64105. Please indicate on the envelope whether the communication is from a shareholder or other interested party. All such communications will be forwarded to the director or directors to whom the communication is addressed.

   DIRECTOR ATTENDANCE AT ANNUAL MEETINGS – Although the Company has no specific policy regarding director attendance at its annual meeting, all directors are encouraged to attend. Board and Committee meetings are held immediately preceding and following the annual meeting, with directors attending the annual meeting. All of the Company’s directors attended last year’s annual meeting.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE NOMINEES NAMED ABOVE, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY.

ITEM 2 –

RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS –

   The Board of Directors has appointed KPMG LLP (“KPMG”) as independent accountants to audit the Company’s financial statements for the fiscal year ending April 30, 2008. A representative of KPMG is expected to attend the annual meeting to respond to appropriate questions and will have an opportunity to make a statement if he or she so desires. For additional information regarding the Company’s relationship with KPMG, please refer to the “Audit Committee Report” on page 16.

   The Board of Directors unanimously recommends that shareholders approve the ratification of the appointment of KPMG for the fiscal year ending April 30, 2008. In connection with this recommendation, the Board of Directors considered, and calls shareholders’ attention to, the potentially negative impact of the election of Richard C. Breeden and his associates (the “Breeden nominees”) on KPMG’s independence as the auditor of the Company’s financial statements for the fiscal year ending April 30, 2008.

   In the notice that Breeden Partners was required to give under the Company’s bylaws, as well as in Breeden Partners’ preliminary proxy statement filed with the SEC on July 9, 2007, Breeden Partners failed to disclose that, since August 2005, Mr. Breeden has served as the Monitor of KPMG. (Breeden Partners subsequently included this disclosure in its revised preliminary proxy statement filed with the SEC on July 27, 2007.) Mr. Breeden is compensated and indemnified by KPMG for serving in the capacity of Monitor.

   The Monitorship was established under a deferred prosecution agreement (the “Agreement”) that KPMG entered into with the U.S. Attorney for the Southern District of New York (the “U.S. Attorney”) in a case entitled United States of America v. KPMG LLP. The Agreement gives Mr. Breeden broad jurisdiction, powers and oversight authority over KPMG and all of its personnel until, at the earliest, September 2008. Mr. Breeden’s authority includes review and monitoring of KPMG’s compliance with the Agreement itself, as well as with KPMG’s maintenance and execution of a compliance and ethics program that fully comports with certain specified criteria under the U.S. Sentencing Guidelines and meets other detailed requirements of the Agreement. The Agreement specifically provides that the intent of the Agreement is that the provisions regarding the Monitor’s jurisdiction, powers and oversight authority and duties be broadly construed and it expressly authorizes the Monitor to take “any other actions,” beyond those enumerated, “that are necessary to effectuate his . . . oversight and monitoring responsibilities.” In addition, the Agreement gives Mr. Breeden sole discretionary power to recommend dismissal or other disciplinary action with respect to any KPMG personnel for failure to cooperate with him, which action must be carried out by KPMG unless countermanded by the U.S. Attorney’s Office. The text of the Agreement is available online at http://www.usdoj.gov/usao/nys/pressreleases/ August05/kpmgdpagmt.pdf.

   The Board believes that Mr. Breeden’s assessment of KPMG’s compliance with the Agreement, which he is required to report every four months to the U.S. Attorney’s Office, is of critical importance to KPMG. The

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charges against KPMG may be reinstituted, partners and other personnel may be removed, or the Monitorship may be extended, if it is determined that KPMG has violated any provision of the Agreement.

   Under the SEC’s stringent auditor independence rules, a public company’s auditor must be independent both in fact and in appearance. The general standard under the SEC rules is that an accountant is not independent if “the accountant is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the accountant is not, capable of exercising objective and impartial judgment on all issues encompassed within the accountant’s engagement.” The SEC rules state that, “[i]n determining whether an accountant is independent, the Commission will consider all relevant circumstances, including all relationships between the accountant and the audit client, and not just those relating to reports filed with the Commission.” In furtherance of the broad independence standard, the SEC rules include a non-exclusive list of relationships that are inconsistent with independence. Among the relationships specifically addressed in the SEC’s rules, a partner or professional employee of an audit firm cannot serve on the board of an audit client without destroying the audit firm’s independence. The Board believes that the unique relationship between Mr. Breeden and KPMG, which Breeden Partners describes in its revised preliminary proxy statement as representing the Department of Justice “in policing KPMG,” gives Mr. Breeden far greater influence over KPMG and its personnel than could be exerted by any one partner or professional employee.

   The Board believes that the issues relating to Mr. Breeden’s service as KPMG’s Monitor also extend to Breeden Partners’ other nominees by virtue of their employment in businesses controlled by Mr. Breeden. Breeden Partners has disclosed that, since 2006, Robert A. Gerard has served as the Senior Advisor and member of the Investment Committee of Breeden Capital Management LLC and that L. Edward Shaw, Jr. has served as Senior Managing Director of Richard C. Breeden & Co., LLC. According to Breeden Partners, Mr. Breeden is the Managing Member and Chairman and Chief Executive Officer of Breeden Capital Management LLC and the Chairman of Richard C. Breeden & Co., LLC.

   The Board believes that the election of Mr. Breeden or the other Breeden nominees as directors of the Company would create a grave risk that KPMG would no longer be deemed to be independent with respect to the Company and therefore that KPMG could no longer audit or review the Company’s financial statements. Although the Agreement provides that “the Monitor is not, and shall not be treated for any purpose, as an officer, employee, agent or affiliate of KPMG,” the Board believes that independence turns upon the reality of a relationship rather than its characterization in an agreement — particularly one entered into before Mr. Breeden launched his investment funds or acquired any shares of the Company’s stock. In response to the Company raising the issues discussed in this Item 2, the U.S. Attorney notified the Company that “[y]ou have not asked this Office to take any action, and we do not believe any action is warranted.” However, the Agreement expressly states that it is not binding on any regulatory authorities other than the U.S. Attorney and the Department of Justice, and the Company understands that the authorities responsible for regulating public company auditor independence are the Office of Chief Accountant of the SEC and the Public Company Accounting Oversight Board (the “PCAOB”).

   As part of its oversight responsibilities under its charter, the Audit Committee is required to determine whether the Company’s outside auditors are independent. Similarly, the PCAOB requires an outside auditor to disclose to the audit committee of its client all relationships between the auditor and the audit client that, in the auditor’s professional judgment, “may reasonably be thought to bear on independence.” The Audit Committee will make a determination concerning KPMG’s independence based on all relevant facts and circumstances, including the views of KPMG, which has an obligation to inform the Audit Committee of its own determination about its independence. Under certain circumstances, the Audit Committee may seek consultation with the Office of Chief Accountant and/or the PCAOB.

   In the event KPMG must be replaced, the Company believes that, in contrast with the orderly post-year-end change of auditors which it experienced in 2003, prior to the applicability of Section 404 of the Sarbanes-Oxley Act and related rules and regulations, a mid-year change of auditors would be disruptive and divert management and Board attention from strategic and operational matters. First, the Audit Committee must identify potential independent auditors and complete an engagement process with another audit firm that has the requisite qualifications, resources, independence and willingness to accept the engagement, including the negotiation of acceptable commercial terms. Complicating this effort, there are a limited number of audit firms other than KPMG that are capable of auditing a public company such as H&R Block and the Company currently engages some of them for significant services that may render such firms non-independent or unwilling to accept an audit engagement. Assuming this hurdle can be overcome, the new independent auditor, working in conjunction

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with the Company, would be required to perform extensive procedures to establish an understanding of the significant processes and controls for the Company’s significant business units, as mandated by Statement on Auditing Standards No. 100, to enable the new auditor to perform a review of the Company’s quarterly financial statements, which is a prerequisite to the Company filing a quarterly report on Form 10-Q. The new independent auditor would be required to perform even more extensive procedures in connection with its audit of the Company’s year-end financial statements and its assessment of the Company’s internal control over financial reporting under Section 404. The Company expects that it would incur significant “first-time through” costs attributable to the new independent auditor’s need to familiarize itself with the Company, including the use of additional auditor personnel, as well as the loss of the prior auditor’s institutional knowledge and ability to rely on prior work (and thus a loss of the cost efficiencies anticipated to be created by the provisions of newly-adopted Auditing Standard No. 5 relating to subsequent years’ audits). In addition, there can be no assurance that a change to new independent auditors in the middle of the fiscal year would not delay the filing of a quarterly report on Form 10-Q, which in turn could lead to a breach of the reporting covenants under the Company’s debt instruments and postponement of securities offerings that may be desirable for the Company to undertake.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY.

ITEM 3 –

SHAREHOLDER PROPOSAL RELATED TO THE COMPANY’S CHAIRMAN OF THE BOARD POSITION –

The AFL-CIO Reserve Fund, 815 Sixteenth Street, N.W., Washington, D.C. 20006, record owner of 200 common shares, has notified us that it intends to present the following proposal at this year’s meeting. The Board recommends a vote against this proposal for the reasons set forth following the proposal.

   The text of the proposal and supporting statement appear in the exact form received by the Company. All statements contained in the shareholder proposal and supporting statement are the sole responsibility of the proponent:

   “RESOLVED: That stockholders of H&R Block, Inc., (“H&R Block” or “the Company”) ask the Board of Directors to adopt a policy that the board’s chairman be an independent director who has not previously served as an executive officer of the Company.

   The policy should be implemented so as not to violate any contractual obligation. The policy should also specify (a) how to select a new independent chairman if a current chairman ceases to be independent during the time between annual meetings of shareholders; and, (b) that compliance with the policy is excused if no independent director is available and willing to serve as chairman.

Supporting Statement:

It is the responsibility of the Board of Directors to protect shareholders’ long-term interests by providing independent oversight of management, including the Chief Executive Officer (“CEO”), in directing the corporation’s business and affairs. Currently at our Company Mr. Mark A. Ernst holds both the positions of Chairman of the Board and CEO. We believe that this current scheme may not adequately protect shareholders.

   It is difficult to overstate the importance of the board of directors in our system of corporate accountability. As the Conference Board Commission on Public Trust and Private Enterprise stated, “The ultimate responsibility for good corporate governance rests with the board of directors. Only a strong, diligent and independent board of directors that understands the key issues, provides wise counsel and asks management the tough questions is capable of ensuring that the interests of shareowners as well as other constituencies are being properly served.”

   The responsibilities of a company’s board of directors include reviewing and approving management’s strategic and business plans; approving material transactions; assessing corporate performance; and selecting, evaluating, compensating and, if necessary, replacing the CEO (Report of the NACD Blue Ribbon Commission on Director Professionalism). Although the board and senior management may work together to develop long-range plans and relate to key constituencies, we believe the board’s responsibilities may sometimes bring it into conflict with the CEO.

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   In our opinion, when a CEO serves as board chairman, this arrangement may hinder the board’s ability to monitor the CEO’s performance. As Intel co-founder and former chairman Andrew Grove put it, “The separation of the two jobs goes to the heart of the conception of a corporation. Is a company a sandbox for the CEO, or is the CEO an employee? If he’s an employee, he needs a boss, and that boss is the board. The chairman runs the board. How can the CEO be his own boss?”

   We urge stockholders to promote independent board leadership and vote for this proposal.”

H&R BLOCK’S RESPONSE –

The Board fully recognizes that independent oversight of management is an important component of an effective board and believes that it has discharged this responsibility well to date. However, the Board does not believe that mandating a separation of the positions of Chairman of the Board and Chief Executive Officer is either necessary or effective to achieve oversight.

   Our Company’s Bylaws provide the maximum flexibility to the Board in selecting the individual best suited to serve as Chairman. The Board annually determines the most appropriate person to serve as Chairman, which could result in the selection of an independent Chairman if the Board were to deem such selection appropriate. Adopting a policy to mandate that the Chairman be an independent director would restrict this flexibility and is not in the best interests of our Company or the shareholders in light of our current governance structure.

   Our Company’s Corporate Governance Guidelines provide that independent directors shall constitute a substantial majority of the Board. To that end, our Company has an overwhelmingly independent board, as nine of the Board’s 11 directors are independent under the New York Stock Exchange listing standards. Furthermore, the Board has a Presiding Director who is an independent director that serves as Chairman of the Executive Committee, leads executive sessions of the independent directors at meetings held prior to each regular meeting of the Board, reviews with the Chief Executive Officer the Board’s annual Chief Executive Officer performance evaluation and performs other duties as may be designated by the Board. In addition, the Presiding Director may call executive sessions as deemed necessary.

   Our Company’s governance practices also assure that the Board will have the necessary authority and practices in place to review and evaluate our Company’s business operations as needed to make decisions that are independent of our Company’s management. Specifically, each of the Audit, Compensation, and Governance and Nominating Committees are required to consist solely of independent directors, and the Finance Committee must consist of a majority of independent directors. Also, the Board has full access to our Company employees to ensure that directors can ask all questions and obtain all information necessary to fulfill their duties. In addition, the Board has access to, and authority to engage, outside advisors.

   Concerning Chief Executive Officer compensation, the independent directors, led by the Compensation Committee, conduct a review at least annually of the performance of the Chief Executive Officer. The independent directors establish the evaluation process and determine the specific criteria by which the Chief Executive Officer is evaluated. The Board’s Presiding Director, as previously discussed, communicates and reviews with the Chief Executive Officer the results of the performance evaluation.

   As indicated above, the governance profile of our Company is sufficient to ensure that the Board provides independent oversight of management. The Board believes it is in the best interests of our Company and its shareholders to retain flexibility to exercise its collective judgment to determine who should serve as Chairman, given the circumstances at any particular point in time.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” THIS PROPOSAL FOR THE FOREGOING REASONS, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY.

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AUDIT COMMITTEE REPORT –

The Company’s management is responsible for preparing financial statements in accordance with generally accepted accounting principles and the financial reporting process, including the Company’s disclosure controls and procedures and internal control over financial reporting. The Company’s independent accountants are responsible for (i) auditing the Company’s financial statements and expressing an opinion as to their conformity to accounting principles generally accepted in the United States and (ii) auditing management’s assessment of the Company’s internal control over financial reporting and expressing an opinion on such assessment. The Audit Committee of the Board of Directors, composed solely of independent directors, meets periodically with management, the independent accountants and the internal auditor to review and oversee matters relating to the Company’s financial statements, internal audit activities, disclosure controls and procedures and internal control over financial reporting and non-audit services provided by the independent accountants.

   The Audit Committee has reviewed and discussed with management and KPMG LLP (“KPMG”), the Company’s independent accountants, the Company’s audited financial statements for the fiscal year ended April 30, 2007. The Audit Committee has also discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 114 relating to communication with audit committees. In addition, the Audit Committee has received from KPMG the written disclosures and the letter required by Independence Standards Board No. 1 relating to independence discussions with audit committees; has discussed with KPMG their independence from the Company and its management; and has considered whether KPMG’s provision of non-audit services to the Company is compatible with maintaining the auditor’s independence.

   Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors of the Company that the Company’s audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended April 30, 2007, for filing with the Securities and Exchange Commission.

AUDIT COMMITTEE
Louis W. Smith, Chairman
Jerry D. Choate
Len J. Lauer
David Baker Lewis
Tom D. Seip

AUDIT FEES –

The following table presents fees for professional services rendered by KPMG LLP for the audit of the Company’s annual financial statements for the years ended April 30, 2007 and 2006 and fees billed for other services rendered by KPMG LLP for such years (Audit fees for the year ended April 30, 2006 have been adjusted to reflect additional fees incurred in fiscal year 2006 that were approved by the Audit Committee of the Board of Directors after the Company’s fiscal year 2006 proxy statement was filed with the SEC):

   Audit Fees consist of fees for professional services rendered for the audit of the Company’s financial statements and review of financial statements included in the Company’s quarterly reports and services normally provided by the independent auditor in connection with statutory and regulatory filings or engagements.

   Audit-Related Fees are fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements or that are traditionally performed by the independent auditor.

   Tax Fees consist of fees for the preparation of original and amended tax returns, claims for refunds and tax payment-planning services for tax compliance, tax planning, tax consultation and tax advice.

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   The Audit Committee has adopted policies and procedures for pre-approving audit and non-audit services performed by the independent auditor so that the provision of such services does not impair the auditor’s independence. Under the Audit Committee’s pre-approval policy, the terms and fees of the annual audit engagement require specific Audit Committee approval. Other types of service are eligible for general pre-approval. Unless a type of service to be provided by the independent auditor has received general pre-approval, it will require specific Audit Committee pre-approval. In addition, any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.

   General pre-approval granted under the Audit Committee’s pre-approval policy extends to the fiscal year next following the date of pre-approval. The Audit Committee reviews and pre-approves services that the independent auditor may provide without obtaining specific Audit Committee pre-approval on an annual basis and revises the list of general pre-approved services from time to time. In determining whether to pre-approve audit or non-audit services (regardless of whether such approval is general or specific pre-approval), the Audit Committee will consider whether such services are consistent with the Securities and Exchange Commission’s rules on auditor independence. The Audit Committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. All such factors will be considered as a whole and no one factor should necessarily be determinative. The Audit Committee will also consider the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services. The Audit Committee may determine for each fiscal year the appropriate ratio between fees for Audit Services and fees for Audit-Related Services, Tax Services and All Other Services.

   The Audit Committee may delegate pre-approval authority to one or more of its members. The member or members to whom such authority is delegated shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

   The Audit Committee has concluded that the provision of non-audit services provided to the Company by its independent accountant during the 2007 fiscal year was compatible with maintaining the independent accountant’s independence.

EXECUTIVE COMPENSATION –

COMPENSATION DISCUSSION AND ANALYSIS

   INTRODUCTION – We are committed to increasing shareholder value through profitable growth and the execution of specific strategies for each of our businesses. Superior performance by our executive officers and management team is essential to achieving that goal. To that end, we have designed our executive compensation program to attract, retain, motivate and reward a high-performing executive team.

   For the fiscal year ended April 30, 2007, our named executive officers (“NEOs”) were:

   EXECUTIVE COMPENSATION PHILOSOPHY AND CORE PRINCIPLES – Our philosophy is to link executive compensation closely to shareholder value creation. This linkage may be direct to total shareholder return, or to financial, operational, and individual measures that we believe ultimately drive shareholder value. We establish performance objectives, consistent with our business planning process, that reflect meaningful progress toward strategy execution and shareholder value creation. Our executive compensation programs are designed to achieve pay for performance and alignment with long-term shareholder interests.

   When determining the type and amount of executive compensation, we emphasize the direct elements of pay (both current cash compensation and long-term, equity-based compensation) as opposed to other, more indirect pay programs (i.e., executive benefits and perquisites). We combine these components in a manner we believe

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delivers appropriate awards for contributing to current business results, while at the same time motivating our executives to enhance future business results. We determine the mix between cash compensation and long-term, equity-based compensation based on market competitiveness and what we believe will motivate our executive team to achieve our business objectives.

   The Compensation Committee works with compensation consultants to define the appropriate market for executive compensation and benchmark our executive compensation program against that market each year. The following data sources are used in conducting this benchmarking process: proxy disclosures by a peer group consisting of companies similar to us in terms of industry and scope of operations (the “Peer Group”); specialized survey data covering similar positions in general industry and financial and professional services; and other relevant market information. The Compensation Committee reviews all data to confirm that the information is appropriate in light of our business and industries in which we compete for executive talent. The benchmarking process is conducted as follows:

   The Compensation Committee reviews the Peer Group annually and revises the Peer Group as circumstances warrant. In light of our unique business portfolio (which consists of tax services, mortgage services, investment services and business services), there is no one company that is a true peer for compensation benchmarking purposes. Accordingly, the Peer Group consists of companies with (i) business lines most similar to our portfolio of businesses and (ii) similar size, revenues, earnings and market capitalization. For fiscal year 2007, the Peer Group consisted of the following financial and professional service companies:

   For fiscal year 2008, the Peer Group has been adjusted primarily to (i) reduce the emphasis on mortgage services in light of the expected sale of Option One Mortgage Corporation (“OOMC”), and (ii) replace companies that have been, or are being, acquired. The fiscal year 2008 Peer Group is as follows:

   Generally, our philosophy is to target total compensation at the market median with a substantial portion of total compensation at risk for performance. The Compensation Committee generally sets performance objectives for specific awards (threshold, target and maximum) such that the targeted level of total compensation can be achieved only when targeted business performance objectives are met. Consequently, executives may receive total compensation substantially above or below targeted pay levels depending upon business performance.

   USE OF EXTERNAL CONSULTANTS – The Compensation Committee retains Mercer Human Resources Consulting (“Mercer”) as an external compensation consultant for objective advice and assistance on executive compensation matters. Among other things, Mercer advises the Committee on the assessment of market compensation levels, our pay positioning relative to the market, the mix of pay, incentive plan design, and other

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executive employment terms. Mercer provides its advice based in part on prevailing and emerging market practices, but also in part on our specific business context. Mercer performs other services for the Company, although the Committee’s specific advisors perform no other work for the Company. The Committee reviews these other services twice annually to ensure the objectivity of Mercer’s advice to the Committee. The Compensation Committee has the right to terminate Mercer’s services at any time.

   EXECUTIVE EVALUATION PROCESS – Each year, our Compensation Committee reviews our CEO’s performance against the financial, strategic and individual objectives established previously by the non-employee members of the Board. Based upon its review, the Compensation Committee makes recommendations to the non-employee members of the Board regarding the CEO’s compensation. The non-employee members of the Board then determine the CEO’s compensation, taking into account the Compensation Committee’s recommendation and their own review of the CEO’s performance.

   Our Compensation Committee assesses the performance of other executive officers and approves the compensation of such officers, taking into account recommendations of the CEO. Our CEO and senior vice president of human resources assist the Compensation Committee in reaching compensation decisions regarding executives other than the CEO. Executive officers do not play a role in determining their own compensation, other than discussing their annual performance reviews with their supervisors.

   ELEMENTS OF EXECUTIVE COMPENSATION PROGRAM – Our executive compensation program consists of four elements: base salary, short-term incentives, long-term incentives and benefits and perquisites. Each of our compensation elements fulfills one or more of our objectives of attracting, retaining, motivating and rewarding a high-performing executive team. These elements are evaluated by our Compensation Committee, which has authority to approve certain matters and makes recommendations to our non-employee directors regarding matters requiring approval by the non-employee directors (such as the compensation of our CEO and certain actions under plans in which the CEO participates). Our non-employee directors take these recommendations into account in making determinations. All determinations discussed below were approved by a majority vote.

   Base Salary – We establish and pay base salaries at levels designed to enable us to attract and retain superior executive talent and to reward executives for consistently high performance over a sustained time period. We determine executive base salaries based on the executive’s role, experience, and performance, as well as relative responsibilities within the Company and market data for similar positions.

   For fiscal year 2007, base salaries for our NEOs were as follows:

   Mr. Ernst declined a salary increase at the end of fiscal year 2006, so his fiscal year 2007 salary was unchanged from fiscal year 2006. All increases reflect a general increase to keep pace with market movement. In addition, Mr. Tait’s increase reflects strong fiscal year 2006 performance at our Business Services strategic business unit, and Mr. Gokey’s increase reflects an adjustment to align his base salary with salaries of other executives in the Company. Mr. Spaeth’s base salary remained unchanged for fiscal year 2007 in light of his responsibilities compared to those of our other executives.

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   At their June 2007 meetings, the Compensation Committee approved the following base salaries for our NEOs, effective July 1, 2007 (except for Mr. Ernst, whose base salary was approved by the non-employee members of the Board of Directors, based upon a recommendation of the Compensation Committee):

   The increase for Mr. Ernst reflects an adjustment to bring his salary closer to a market comparable level. The increase for Mr. Trubeck reflects both a general market increase and recognition of his performance. Mr. Dubrish did not receive a salary increase due to the pending sale of OOMC and the retention award he received as described on page 26. The increases for Messrs. Tait and Gokey reflect a general increase to keep pace with market movement.

   Short-Term Incentive Compensation – Our short-term incentive (“STI”) compensation program is designed to reward executives for achieving pre-established annual financial and strategic objectives and, in some cases, individual performance objectives. For corporate-level executives, 40% of targeted STI compensation is tied to our corporate earnings per share (“EPS”), and the remaining 60% is based on financial and strategic performance objectives at the business unit level. This performance framework recognizes the importance of EPS and also ensures that our corporate-level executives maintain a strategic focus on all business units. For our unit-level NEOs, we weight business-unit performance more heavily, with 20% of targeted STI compensation tied to corporate EPS and 80% based on business unit objectives. This framework reflects the greater and more direct impact of unit-level executives on their business units.

   The financial-performance goals under our STI compensation program are based on our fiscal year business plan, which is developed by management and approved by the Board of Directors. Performance targets in general are tied directly to the business plan. Threshold and maximum performance goals are established above and below the target goals to establish an appropriate relationship between changes in performance and changes in pay. Each year, the Compensation Committee reviews management’s proposed financial performance goals and other strategic performance objectives for use under the STI compensation program for the following year.

   We pay STI compensation following completion of our fiscal year, and generally pay STI compensation only to the extent the Company (or applicable business unit) has met the applicable financial and strategic performance objectives previously reviewed and approved by the Compensation Committee for business-unit level executives and by the Board’s non-employee directors for corporate-level executives. Prior to payment, the Compensation Committee reviews and approves the STI compensation payouts for business-unit level executives. The Board’s non-employee directors review and approve STI compensation payouts for corporate-level executives, based on recommendations from the Compensation Committee. STI compensation payouts can range from 0% to 200% of the target award based on actual performance against previously established objectives.

   STI compensation payouts generally are paid in cash. Any payouts in excess of 150% of the targeted payouts (“Restricted Stock STI Payouts”) are paid in restricted shares of our common stock under terms and restrictions identical to those of restricted stock awarded as long-term incentive compensation as described below. The amount of restricted stock awarded is calculated by dividing the cash value of the applicable incentive compensation by the last reported closing price for our common stock as of June 30 (the date on which we award restricted stock each year). We pay Restricted Stock STI Payouts as a means to provide an incentive for sustained high performance over an extended time period.

   A portion of our NEO’s STI compensation is paid through the H&R Block Executive Performance Plan (the “Executive Performance Plan”), which was approved by our shareholders on September 7, 2005. The Executive Performance Plan permits us to deduct portions of our NEOs’ STI compensation as “performance-based

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compensation” under Section 162(m) of the Internal Revenue Code. Awards under the Executive Performance Plan are based on financial and strategic performance objectives reviewed and approved each year by the Compensation Committee for business-unit level executives and by the Board’s non-employee directors, based upon a recommendation of the Compensation Committee, for corporate-level executives. For fiscal year 2007, the performance objectives under the Executive Performance Plan were the same as those under our general STI compensation program. For fiscal year 2007, awards under the Executive Performance Plan were made to our CEO and four other highest paid executive officers whose remuneration is potentially subject to Section 162(m).

   Actions Pertaining to Fiscal Year 2007 STI Compensation. At their June 2006 meetings, the Compensation Committee recommended and the non-employee members of the Board approved the fiscal year 2007 STI performance criteria for our NEOs. STI performance criteria for our corporate-level NEOs, Messrs. Ernst and Trubeck, included corporate EPS, Tax Services retail tax clients served, Tax Services digital tax clients served, OOMC cost of origination, Mortgage Services wholesale origination volume, Financial Services pre-tax earnings and Business Services pre-tax earnings. STI performance criteria for our business unit-level NEOs typically included growth in corporate diluted EPS and business-unit-specific criteria, including pre-tax earnings growth, revenue unit growth and cost-of-service margins. These criteria were selected as the key corporate and business unit drivers of shareholder value. The performance targets were established at levels such that executives would receive a target-level payout if we met our fiscal year 2007 business plan goals. The fiscal year 2007 business plan goals were consistent with financial performance guidance announced publicly in June 2006.

   The table below provides the target-level payout under our 2007 STI program (through our Executive Performance Plan) for our NEOs, as well as awards actually paid based on performance against previously established 2007 STI program performance objectives:

   For fiscal year 2007, actual STI compensation payouts were less than targeted payouts because results achieved were below pre-established performance objectives. In particular, our results were substantially below (i) our corporate EPS target (which affected payouts for all NEOs), (ii) our Financial Services segment pre-tax earnings target (which affected payouts for Messrs. Ernst and Trubeck), (iii) our Business Services segment pre-tax earnings target (which affected payouts for Messrs. Ernst, Trubeck and Tait) and (iv) our minimum mortgage origination and cost of origination targets (which affected payouts for Messrs. Ernst, Trubeck and Dubrish).

   In June 2007, the Compensation Committee approved contingent discretionary short-term incentive compensation awards to our NEOs (except for Mr. Ernst, whose discretionary award was approved by the non-employee members of the Board of Directors, based upon a recommendation of the Compensation Committee). Because of the importance of completing the OOMC sale, the discretionary awards will not be paid until the

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OOMC sale is completed pursuant to the terms of the OOMC sale agreement. The contingent discretionary awards are as follows:

   The contingent discretionary awards recognize the efforts of Messrs. Ernst, Trubeck and Dubrish in preparing for the sale of OOMC and negotiating an agreement to sell OOMC in a difficult and challenging market environment for sub-prime mortgage companies. In addition, the awards to all of the NEOs reflect (i) the client growth in our retail tax business and market share growth in our digital tax business during fiscal year 2007, (ii) the revenue growth in our Business Services legacy core business service offerings of accounting, tax, consulting and the wealth management business, and (iii) OOMC’s performance, which was better than most of its industry peers in a market that encountered extraordinary volatility and turmoil in fiscal year 2007. The Committee set the contingent discretionary award amounts so that the combined amount of the contingent discretionary awards (if paid) and the actual STI awards would be less than both the target STI award for each individual and the STI payout for each individual that would have been paid had discontinued operations been excluded from the STI award calculation.

   Actions Pertaining to Fiscal Year 2008 STI Compensation. At their June 2007 meetings, the Compensation Committee recommended and the non-employee members of the Board approved fiscal year 2008 target STI opportunities for our corporate-level NEOs, Messrs. Ernst and Trubeck, and our Compensation Committee approved target STI opportunities for our business unit-level NEOs as follows:

   The above target opportunities are intended to place a significant portion of our NEOs’ fiscal year 2008 total cash compensation at risk with company performance, thereby aligning our NEOs’ compensation with shareholder interests. These target opportunities are also intended to provide competitive total compensation opportunities within the market context. In particular, the target opportunities for Messrs. Ernst and Trubeck were increased from the prior year to bring the total of salary and target STI closer to applicable market levels.

   The Compensation Committee recommended and the non-employee Board members approved the following fiscal year 2008 STI performance criteria for our corporate-level NEOs: corporate earnings per share from continuing operations, consolidated pre-tax earnings from continuing operations, consolidated revenue from continuing operations, Tax Services professional services tax clients served, Tax Services digital paid tax clients served and Business Services pre-tax earnings. The Compensation Committee approved the STI performance criteria for business unit-level NEOs, which typically include corporate earnings per share from continuing operations and business-unit-specific criteria such as pre-tax earnings growth and in some cases revenue unit performance and revenue growth targets. These criteria were selected as the key corporate and business unit drivers of shareholder value. The performance targets were established at levels such that executives will

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receive a target-level payout if we meet our fiscal year 2008 business plan goals. The fiscal year 2008 business plan goals are consistent with financial performance guidance announced publicly in June 2007.

   Long-Term Incentive Compensation – We pay equity-based compensation to encourage stock ownership by our executive officers and to provide executives an economic interest in increasing shareholder value over the long term, thereby aligning executive and shareholder interests. We also use equity-based compensation to encourage retention by providing for equity-based compensation to vest over multi-year periods. We believe that our equity-based compensation is effective in attracting, retaining, and rewarding executives and key employees.

   Equity-based compensation is awarded at the Board’s discretion, taking into account the Compensation Committee’s recommendations. We generally award equity-based compensation on an annual basis as of each June 30, which typically follows the announcement of our financial results for the most recently completed fiscal year and our financial performance guidance for the upcoming fiscal year. From time to time we award equity-based compensation as part of an employment offer or promotion or, in certain limited instances, as a special award. The amount of equity-based compensation awarded is based on the executive’s level of responsibility, performance and long-term potential. The award amount is also guided by market data for positions of similar scope and responsibility.

   Our equity-based compensation consists of stock options, performance shares and restricted stock. In fiscal years 2007 and 2008, our NEOs received a mix of equity-based compensation consisting of approximately 50% to 75% of value in stock options and 50% to 25% of value in performance shares, respectively. Other senior executives generally received an equity-based compensation mix of approximately 67% of value in stock options and 33% of value in restricted stock or performance shares. The equity-compensation mix for other eligible executives was 50% of value in stock options and 50% of value in restricted stock. The Compensation Committee weighted the mix of these awards to be consistent with our objective of providing compensation that is appropriately balanced from an at-risk perspective. We weight the mix of equity-based compensation so that senior executives receive a greater portion of long-term value in stock options and performance shares (rather than restricted shares) to more closely align their pay with company performance.

   The forms of equity-based compensation, which are delivered pursuant to our 2003 Long-Term Executive Compensation Plan, are as follows:

   Stock Options – We generally grant stock options annually as of each June 30, following the June Compensation Committee and Board meetings at which annual equity-based compensation awards are recommended and approved. In cases of grants for new hires, promotions and special awards, options are awarded as of the first trading day of the month following the month during which the hiring, promotion or special award occurred. Option exercise prices are set at the closing price of the stock on the date of grant and the options expire after ten years. Options granted in fiscal year 2007 generally become exercisable (i) over a three-year period in one-third increments or (ii) if earlier, upon occurrence of a “change of control” of the Company as explained below. We do not re-price previously granted options.

   Performance Shares – Performance shares are awarded annually as of each June 30. A participating executive receives 0.5 times the target number of performance shares and has an opportunity to receive as much as 1.5 times the target number for achievement of performance against a pre-established objective. The 1.5 times maximum opportunity provides an incentive for driving significant shareholder value over the long-term. We limited the range of payout to 0.5 to 1.5 times the target number of shares to recognize the complexities of setting meaningful performance objectives over the long term, given our business mix and overall market volatility. In addition, the actual value of shares earned is affected directly by our share price at the end of the performance period.

   Performance shares vest after three years (pursuant to performance against pre-established objectives) and are contingent upon the recipient remaining employed with the Company throughout the three-year performance period. Performance shares are settled upon vesting using shares of our common stock and do not pay dividends during the vesting period. Instead, dividend equivalents are carried as fractional performance shares until vesting, at which time they are settled as additional shares of common stock. Unvested performance shares do not carry voting rights. Shares earned through achievement of performance objectives carry voting rights once the shares are paid out.

   Performance shares granted in fiscal year 2007 for corporate-level executives and unit-level executives in Tax Services will be earned based on our relative total shareholder return for the three-year period ending April 30, 2009. In light of the pending sale of OOMC, performance shares granted in fiscal year 2007 for Mortgage

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Services executives will be based on our relative total shareholder return through an interim period ending prior to the OOMC sale date, with target awards being prorated to reflect the shorter measurement period. In each case, relative total shareholder return will be measured against the S&P 500 at the following parameters:

   Awards will be linearly interpolated for performance between minimum and target or between target and maximum as defined above.

   Performance shares granted in fiscal year 2007 to business unit-level executives in Business Services and H&R Block Financial Advisors will be earned based on cumulative earnings targets for the respective business unit. We believe that using business-unit performance objectives, rather than relative total shareholder return, is a better metric for these smaller businesses because senior executives in these business units have a greater impact upon their business unit results.

   Restricted Stock — Restricted stock is granted annually as of each June 30 and, in certain cases, upon hiring or promotion or as a special award. Restrictions on restricted stock granted in fiscal year 2007 lapse over a three-year period in one-third annual increments beginning on the first anniversary of the date of issuance. Prior to the lapse of restrictions, restricted stock may not be transferred and is in most cases forfeited upon cessation of employment. Restricted stock recipients receive cash dividends on unvested restricted stock on the same basis as if such stock were unrestricted. Restricted stock recipients may vote unvested restricted stock shares at shareholders meetings.

   2006 and 2007 Long-Term Incentive Compensation Awards. In June 2006, our NEOs were granted stock options and performance shares in the following amounts:

   The stock options are exercisable at a price of $23.86 per share (the date-of-grant closing price on June 30, 2006). The performance shares for Messrs. Ernst, Trubeck, Dubrish, Gokey and Spaeth were scheduled to vest after three years, with the actual number of performance shares to be received depending on our relative total shareholder return as compared to the S&P 500 as described above. As noted above, we use business-unit specific performance objectives for performance shares granted to executives at Business Services. Accordingly, the performance share terms for Mr. Tait provide for vesting after three years, with the actual number of performance shares Mr. Tait will ultimately receive depending on our Business Services segment cumulative net earnings for the three fiscal years ending on April 30, 2009.

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   In June 2007, our NEOs were granted stock options and performance shares in the following amounts:

   The stock options are exercisable at a price of $23.37 per share (the date-of-grant closing price on June 30, 2007). The performance shares for Messrs. Ernst, Trubeck and Gokey vest after three years, with the actual number of performance shares to be received depending on our relative total shareholder return as compared to the S&P 500 as described above. The performance share terms for Mr. Tait provide for vesting after three years, with the actual number of performance shares Mr. Tait will ultimately receive depending on our Business Services segment cumulative net earnings (excluding discontinued operations for fiscal year 2008) for the three fiscal years ending on April 30, 2010. Fiscal year 2007 long-term incentive compensation awards are largely consistent with the corresponding rewards for fiscal year 2006 and were based on responsibility levels, performance and long-term potential, as well as the market for positions of similar scope and responsibility. Mr. Dubrish did not receive any grants of options or performance shares due to the pending sale of OOMC and the retention award he received as described on page 26.

   Compensation “Clawback” Policy – If our Board determines that an executive officer has engaged in negligence or fraudulent or intentional misconduct that results in a significant restatement of our financial results and a resulting overpayment in compensation, the Board has the authority to seek reimbursement of any portion of performance-based or incentive compensation paid or awarded to the executive in all previous years that is greater than would have been paid or awarded if calculated based on the restated financial results.

   Benefits – We provide certain benefits to all employees such as: employer matching contributions to our qualified retirement plans; an employee stock purchase plan that permits purchases of our common stock at a discount; life insurance; and health and welfare benefit programs. Benefits for executives generally are the same as benefits for all other employees, except that executive officers and certain key employees may participate in our executive survivor plan and deferred compensation plan. We believe our executive benefit program is generally conservative relative to market practice, which is consistent with our philosophy to emphasize the direct elements of our executive compensation program.

   Our executive survivor plan is a life insurance plan that provides death benefits up to three times the participating executive’s salary. The death benefits are payable to beneficiaries designated by the participating executives.

   Our deferred compensation plan is designed to build retirement savings by offering participants the opportunity to defer salary and short-term incentive compensation. We contribute an annual match to the plan equal to 100% of the first 5% of aggregate salary and bonus deferred to the plan and our qualified retirement plans, less any employer matching contributions made previously to one of our qualified retirement plans for that year. Company contributions vest (i) over a ten-year period starting from the date an executive officer first participates in the plan and (ii) upon a change in control. Gains or losses are posted to a participant’s account pursuant to his or her selection of various investment alternatives. The plan benefits are paid following termination of employment, except in cases of disability or hardship.

   Perquisites – We provide minimal perquisites to our senior executive officers. These perquisites consist primarily of reimbursements for tax preparation fees and reimbursements for physical examinations. We also own a fractional interest in a private aircraft for executives and directors to use for business travel purposes. Our chief executive officer occasionally utilizes this private aircraft at his expense for personal use. He reimburses us for this personal use at the same contractual rate we are charged, which is higher than fares for corresponding commercial flights. We believe our overall executive perquisites are conservative compared with the market.

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TERMINATION OF EMPLOYMENT AND SEVERANCE ARRANGEMENTS – 

   Severance – We provide severance compensation and health and welfare benefits under a standard severance plan to certain employees whose employment is involuntarily terminated in certain instances. We offer this plan as a tool for attracting and retaining talented employees and structure the plan to be generally consistent with competitive market practice. In addition, we may from time to time as circumstances warrant pay severance compensation and related benefits over and above benefits provided by our standard severance plan.

   Under our standard severance plan, an employee who is involuntarily terminated will qualify for compensation and benefits under our severance plan unless (i) the employee was offered a comparable position, (ii) the termination resulted from a sale of assets or other corporate acquisition or disposition, (iii) the employee’s position was redefined to a lower salary rate, (iv) the employee was terminated for “cause,” or (v) the employee’s employment contract was not renewed. Executive officers with employment agreements receive severance pay based upon the number of years of service as defined in their employment agreement. Otherwise, an executive receives one month’s salary as severance pay for each year of service, subject to a minimum of 6 months’ severance pay and a maximum of 18 months’ severance pay. In addition, executive officers receive a pro-rated payment of short-term incentive compensation at the target pay-out rate, based on the executive’s years of service. Our severance plan also provides for stock options that would have vested within 18 months after termination to vest as of the termination date. Pursuant to the plan, employees may exercise stock options vested as of the termination date for a period following termination generally not exceeding fifteen months.

   We paid severance compensation to one of our NEOs, Nicholas J. Spaeth, during fiscal year 2007. Under his severance arrangement, Mr. Spaeth is receiving severance pay totaling $659,000 over a twelve-month period beginning January 2, 2007, which represented one year of base salary and the fiscal year 2007 target-level STI payout. In addition, (i) 223,883 previously granted stock options (which were scheduled to vest before July 2, 2008) vested and became exercisable as of January 2, 2007 and (ii) restrictions on 36,667 previously awarded shares of H&R Block, Inc. common stock (which were scheduled to lapse before July 2, 2008) terminated as of January 2, 2007, resulting in such shares becoming fully vested as of January 2, 2007. Mr. Spaeth was awarded severance compensation over and above that provided by our standard severance plan in consideration of transition assistance Mr. Spaeth provided in connection with his leaving the Company.

   A table showing potential severance payments to our NEOs is located on page 38 in this proxy statement. We believe that the benefits our NEOs would receive under severance scenarios are conservative relative to the market.

   Change-in-Control Provisions – Our NEOs are parties to employment agreements that provide for payment of compensation and benefits in certain instances upon a “change in control.” In addition, certain unvested benefits under our compensation programs accelerate upon a “change in control.” Theses change-in-control provisions (including the events that would trigger change-in-control compensation and benefits) are described on pages 34 through 41 in this proxy statement. We provide these change-in-control benefits as a means to attract and retain talented executives.

   Once each year, our Compensation Committee reviews all components of compensation for our CEO and other highly compensated executive officers. This review encompasses all forms of compensation, including base salary, short-term incentives, long-term incentives, and other vested benefit payouts, as well as amounts pursuant to retirement and non-qualified deferred compensation plans. As a part of this process, the Compensation Committee also reviews tally sheets of executive termination costs for each of these executive officers, including payments upon any “change in control.” Further information regarding payments upon a change in control and other termination scenarios is provided on pages 38 through 41 in this proxy statement.

   OTHER AWARDS – In certain instances, we award compensation to executives in the form of retention awards and sign-on awards when we believe it is in our best interests and our shareholders’ best interests. We offer retention awards in limited instances where there is a strong likelihood that an executive may leave and retention of the executive is critical to achieving a particular business objective. The most common instance in which we offer retention awards is when we sell or dispose of a business. These awards are designed to retain critical employees through the sale and in some instances for a short transition period following the sale.

   We offered retention awards to key executives and critical employees in fiscal year 2007 in connection with our announced plans to pursue strategic alternatives for OOMC. Our OOMC retention plans provide for a mix of cash payments and accelerated lapse of restrictions on previously awarded restricted stock. The cash payments and lapse of restrictions will occur either at the sale date or three months following the sale date. One of our

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NEOs, Robert E. Dubrish, will receive a retention payment of approximately $750,000 if he remains employed with OOMC through the date OOMC is sold. The payment will be in the form of accelerated of vesting of previously awarded unvested restricted shares held by Mr. Dubrish at the sale date with the remaining payment being paid in cash.

   We occasionally offer sign-on awards as a means to attract executives. These awards are typically offered in negotiating employment terms and generally are in the form of guaranteed bonuses in the initial year of employment or grants of equity-based compensation such as stock options or restricted stock.

   STOCK OWNERSHIP GUIDELINES – We believe that our executive officers should have a significant financial stake in the Company to ensure that their interests are aligned with those of our shareholders. To that end, we have adopted stock ownership guidelines that define ownership expectations for certain executive officers. Under these guidelines, executive officers are expected to own shares at the following minimum levels:

   Executive officers subject to the Company’s executive stock ownership guidelines generally are in compliance, or are progressing toward compliance, with the guidelines. Of our NEOs, Messrs. Ernst and Dubrish are in compliance with the guidelines and Messrs. Trubeck, Tait and Gokey are progressing toward compliance with the guidelines. In instances where an executive fails to comply with stock ownership guidelines levels within five years, our CEO may prohibit the executive from selling shares acquired through the vesting of restricted shares or performance shares and may require the executive to utilize net cash bonuses to purchase shares. The Compensation Committee and our CEO review annually each executive’s progress toward meeting the stock ownership guidelines.

   ACCOUNTING FOR STOCK-BASED COMPENSATION – We recognize stock-based compensation expense for the issuance of stock options, restricted stock, and performance shares, as well as stock purchased under our employee stock purchase plan pursuant to Statement of Financial Accounting Standards No. 123(R), “Stock-Based Payment.” Under this accounting methodology, we recognize stock-based compensation expense for the issuance of stock options, restricted stock, performance shares and shares under our employee stock purchase plan on a straight-line basis over applicable vesting periods.

   TAX CONSIDERATIONS – We believe it is in our shareholders’ best interest to maximize tax deductibility when appropriate. Section 162(m) of the Internal Revenue Code limits to $1 million our federal income tax deduction for compensation paid to any one executive officer named in the Summary Compensation Table of our proxy statement, subject to certain transition rules and exceptions for certain performance-based compensation. We have designed the H&R Block Executive Performance Plan and portions of our equity-based compensation so that such compensation would be deductible under Section 162(m), although individual exceptions may occur. Nevertheless, the Compensation Committee may recommend for Board approval non-deductible compensation when it believes it is in our shareholders’ best interest, balancing tax efficiency with long-term strategic objectives.

   Our benefit plans that provide for deferrals of compensation are subject to Section 409A of the Internal Revenue Code. We have reviewed such plans for compliance with Section 409A and believe that they comply with Section 409A.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on its review and discussion with management, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2007 proxy statement.

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COMPENSATION COMMITTEE
Tom D. Seip, Chairman
Jerry D. Choate
Henry F. Frigon
Roger W. Hale
Rayford Wilkins, Jr.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION –

The following non-employee directors serve on the Compensation Committee of the Board of Directors: Tom D. Seip (Chairman), Jerry D. Choate, Henry F. Frigon, Roger W. Hale and Rayford Wilkins, Jr. No directors on the Compensation Committee (a) are or have been officers or employees of the Company or any of its subsidiaries, or (b) had any relationships requiring disclosure in the proxy statement.

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SUMMARY COMPENSATION TABLE –

The following table sets forth for the fiscal year ended April 30, 2007 the compensation paid to or earned by the Company’s principal executive officer and principal financial officer, each of the Company’s three highest paid executive officers (other than the principal executive officer and principal financial officer) who were serving as an executive officer of the Company at the end of such fiscal year and one additional executive officer (Mr. Spaeth) who would have been included as one of the three other highest paid executive officers, but for the fact he was not serving as an executive officer as of April 30, 2007 (collectively, the “Named Executive Officers”).

NOTES:

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GRANTS OF PLAN-BASED AWARDS TABLE –

The following table provides information about non-equity incentive plan awards, equity incentive plan awards, and stock and awards granted to our Named Executive Officers during the fiscal year ended April 30, 2007. The compensation plans under which the grants in the following table were made are described on pages 21 through 25 in this proxy statement.

NOTES:

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE –

The following table summarizes the equity awards we have made to our Named Executive Officers which are outstanding as of April 30, 2007.

NOTES:

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OPTION EXERCISES AND STOCK VESTED TABLE –

The following table summarizes the value realized by the Named Executive Officers on option award exercises and stock award vesting during the fiscal year ended April 30, 2007.

NON-QUALIFIED DEFERRED COMPENSATION TABLE –

The following table summarizes our Named Executive Officers’ compensation under the H&R Block Deferred Compensation Plan for Executives, as amended, during fiscal year 2007.

NOTES:

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H&R BLOCK DEFERRED COMPENSATION PLAN FOR EXECUTIVES –

The Company provides the H&R Block Deferred Compensation Plan for Executives, as amended, a non-qualified plan, (the “DC Plan”) to employees who meet the eligibility requirements. The DC Plan is intended to pay, out of the general assets of the Company, an amount substantially equal to the deferrals, Company contributions and any earnings.

   Participants can elect to defer from 3% to 100% of eligible base salary and eligible commissions and up to 100% of annual bonus on a before tax basis. The Company contributes an annual match to the plan equal to 100% of the first 5% of aggregate salary and bonus deferred to the DC Plan and our qualified retirement plans, less any Company matching contributions made previously to one of our qualified retirement plans for that year.

   The DC Plan offers various investment alternatives to measure earnings including a fixed rate option and Company common stock (limited to 25% of account balance). The deferrals are credited to a bookkeeping account in the participant’s name. Earnings are indexed to the investment options selected by each participant. Participants may change or reallocate the investment mix at any time.

   Participants can elect to receive in-service payments or lump-sum or semi-monthly payments over 3, 5, 10 or 15 years following termination from service or disability. The DC Plan allows for distributions in the event of an unforeseen emergency. If participants made deferrals prior to January 2005, the participants may be permitted certain on-demand distributions with a 10% penalty (applied against pre-2005 account balances only). The DC Plan provides for lump-sum distribution upon a change of control and termination of employment.

   Amounts deferred, if any, under the DC Plan by Named Executive Officers are included in the “Salary” and “Non-Equity Incentive Plan Compensation” that are reported in the Summary Compensation Table.

EMPLOYMENT AGREEMENTS, CHANGE-OF-CONTROL AND OTHER ARRANGEMENTS –

MARK A. ERNST EMPLOYMENT AGREEMENT – Mark A. Ernst is subject to an Employment Agreement with HRB Management, Inc. (“HRB”), an indirect subsidiary of the Company, dated July 16, 1998 (the “Ernst Agreement”), whereby effective September 1, 1998, he was employed as the Executive Vice President and Chief Operating Officer of the Company. The Ernst Agreement provides for, among other things, a base salary; participation in the Company’s Short-Term Incentive Plan; a stock option to purchase shares of the Company’s Common Stock (“Common Stock”) granted on the effective date; restricted shares of the Common Stock (split-adjusted) awarded on the effective date; and other fringe benefits that may be provided from time to time.

   The Ernst Agreement provides that it may be terminated by either party at any time for any reason upon 45 days’ prior written notice. If the Ernst Agreement is terminated (i) by HRB without “cause,” (ii) by Mr. Ernst for “good reason,” or (iii) by either party during the 180-day period following the date of a “change of control” of the Company (as each term is defined in the footnotes to the Potential Payments Upon Termination or Change of Control Table on page 39 of this proxy statement), HRB is obligated to provide Mr. Ernst with those compensation and benefits set forth in the Potential Payments Upon Termination or Change of Control Table on page 38 of this proxy statement.

   The Ernst Agreement contains the following post-termination restrictions on Mr. Ernst: (i) one-year non-hiring commencing on the later of the last day of employment or the cessation of payments under the Ernst Agreement, and (ii) two-year non-competition commencing on the last day of employment.

ROBERT E. DUBRISH EMPLOYMENT AGREEMENT – Robert E. Dubrish is subject to an Employment Agreement with Option One Mortgage Corporation (“Option One”), an indirect subsidiary of the Company, dated February 9, 2002 (the “Dubrish Agreement”), and effective June 30, 2001. The Dubrish Agreement provides for, among other things, a base salary; a stock option to purchase Common Stock (split-adjusted) granted as of the effective date; and other fringe benefits that may be provided from time to time.

   The Dubrish Agreement provides that it may be terminated (i) by either party at any time for any reason upon 45 days’ prior written notice, or (ii) by Option One without notice upon the occurrence of certain stated events. If Mr. Dubrish incurs a “qualifying termination” under the H&R Block Severance Plan (the “Severance Plan”) or if the Dubrish Agreement is terminated by Mr. Dubrish within 180 days following a “change of control” of the Company (as each term is defined in the footnotes to the Potential Payments Upon Termination or Change of Control Table on page 39 of this proxy statement), Option One is obligated to provide Mr. Dubrish with those

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compensation and benefits set forth in the Potential Payments Upon Termination or Change of Control Table on page 38 of this proxy statement.

   The Dubrish Agreement contains the following post-termination restrictions on Mr. Dubrish: (i) one-year non-hiring commencing on the last day of employment, (ii) two-year non-solicitation commencing on the later of the last day of employment or the cessation of payments under the Dubrish Agreement, and (iii) two-year non-competition commencing on the later of the last day of employment or the cessation of payments under the Dubrish Agreement. Severance benefits and compensation provided in connection with a qualifying termination or a change of control will be terminated if Mr. Dubrish violates these restrictions.

   In addition to the compensation and benefits set forth in the Dubrish Agreement, Mr. Dubrish is eligible for a retention award in connection with the sale of Option One, as more fully described on page 26 of this proxy statement.

WILLIAM L. TRUBECK EMPLOYMENT AGREEMENT – William L. Trubeck is subject to an Employment Agreement with HRB, dated October 4, 2004 (the “Trubeck Agreement”), whereby effective October 4, 2004, he was employed as the Executive Vice President, Chief Financial Officer of the Company. The Trubeck Agreement provides for, among other things, a base salary; participation in the Company’s Short-Term Incentive Plan; a stock option to purchase Common Stock granted on the effective date; restricted shares of Common Stock awarded promptly after the effective date; and other fringe benefits that may be provided from time to time.

   The Trubeck Agreement provides that it may be terminated (i) by either party at any time for any reason upon 45 days’ prior written notice, or (ii) by HRB without notice upon the occurrence of certain stated events. If Mr. Trubeck incurs a “qualifying termination” or if the Trubeck Agreement is terminated by Mr. Trubeck within 180 days following a “change of control” of the Company (as each term is defined in the footnotes to the Potential Payments Upon Termination or Change of Control Table on page 39 of this proxy statement), HRB is obligated to provide Mr. Trubeck with those compensation and benefits set forth in the Potential Payments Upon Termination or Change of Control Table on page 38 of this proxy statement.

   The Trubeck Agreement contains the following post-termination restrictions on Mr. Trubeck: (i) one-year non-hiring commencing on the last day of employment, (ii) two-year non-solicitation commencing on the later of the last day of employment or the cessation of payments under the Trubeck Agreement, and (iii) two-year non-competition commencing on the later of the last day of employment or the cessation of payments under the Trubeck Agreement. Severance benefits and compensation provided in connection with a qualifying termination or a change of control will be terminated if Mr. Trubeck violates these restrictions.

STEVEN TAIT EMPLOYMENT AGREEMENT – Steven Tait is subject to an Employment Agreement with HRB Business Services, Inc. (now RSM McGladrey Business Services, Inc.) (“RSM”), an indirect subsidiary of the Company, dated April 1, 2003 (the “Tait Agreement”), whereby effective April 1, 2003, he was employed as President of RSM. The Tait Agreement provides for, among other things, a base salary; participation in the Company’s Short-Term Incentive Plan; a stock option to purchase shares of Common Stock granted on the effective date and on the date in fiscal year 2004 in which options are granted to other senior executives of the Company; restricted shares of Common Stock awarded promptly after the effective date; and other fringe benefits that may be provided from time to time.

   The Tait Agreement provides that it may be terminated (i) by either party at any time for any reason upon 45 days’ prior written notice, or (ii) by RSM without notice upon the occurrence of certain stated events. If Mr. Tait incurs a “qualifying termination” or if the Tait Agreement is terminated by Mr. Tait within 180 days following a “change of control” of the Company (as each term is defined in the footnotes to the Potential Payments Upon Termination or Change of Control Table on page 39 of this proxy statement), RSM is obligated to provide Mr. Tait with those compensation and benefits set forth in the Potential Payments Upon Termination or Change of Control Table on page 39 of this proxy statement.

   The Tait Agreement contains the following post-termination restrictions on Mr. Tait: (i) non-hiring for so long as Mr. Tait is receiving payments under the Tait Agreement subject to a maximum of one year after the last day of employment, (ii) non-solicitation for so long as Mr. Tait receives payments under the Tait Agreement subject to a maximum of one year after the last day of employment, and (iii) non-competition for so long as Mr. Tait receives payments under the Tait Agreement subject to a maximum of one year after the last day of employment. Severance benefits and compensation provided in connection with a qualifying termination or a change of control will be terminated if Mr. Tait violates these restrictions.

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TIMOTHY C. GOKEY EMPLOYMENT AGREEMENT – Timothy C. Gokey is subject to an Employment Agreement with H&R Block Services, Inc. (“HRB Services”), an indirect subsidiary of the Company, dated June 28, 2004 (the “Gokey Agreement”), whereby effective June 28, 2004, he was employed as the President, U.S. Tax Operations of HRB Services. The Gokey Agreement provides for, among other things, a base salary; participation in the Company’s Short-Term Incentive Plan; stock option to purchase shares of Common Stock granted on the effective date; restricted shares of the Company’s Common Stock awarded on the effective date; and other fringe benefits as may be provided from time to time.

   The Gokey Agreement provides that it may be terminated (i) by either party at any time for any reason upon 45 days’ prior written notice, (ii) by HRB Services upon the occurrence of certain stated events, and (iii) by Mr. Gokey for “good reason.” If Mr. Gokey incurs a “qualifying termination,” if the Gokey Agreement is terminated by Mr. Gokey within 180 days following a “change of control” of the Company or for “good reason” (as each term is defined in the footnotes to the Potential Payments Upon Termination or Change of Control Table on page 39 of this proxy statement), HRB Services is obligated to provide Mr. Gokey with those compensation and benefits set forth in the Potential Payments Upon Termination or Change of Control Table on page 38 of this proxy statement.

   The Gokey Agreement contains the following post-termination restrictions on Mr. Gokey: (i) one-year non-hiring commencing on the later of the last day of employment or the cessation of payments under the Gokey Agreement, (ii) one-year non-solicitation commencing on the later of the last day of employment or the cessation of payments under the Gokey Agreement, and (iii) one-year non-competition commencing on the later of the last day of employment or the cessation of payments under the Gokey Agreement. Severance benefits and compensation provided in connection with a qualifying termination or a change of control will be terminated if Mr. Gokey violates these restrictions.

NICHOLAS J. SPAETH SEPARATION AND RELEASE AGREEMENT – Nicholas J. Spaeth and HRB entered into a Separation and Release Agreement dated November 10, 2006 (the “Spaeth Agreement”). The Spaeth Agreement provides for (i) Mr. Spaeth to resign as Senior Vice President, Chief Legal Officer of the Company effective November 10, 2006, (ii) Mr. Spaeth’s employment and his Employment Agreement with HRB to terminate effective January 2, 2007 (the “Termination Date”), (iii) HRB to pay severance to Mr. Spaeth totaling $659,200 over a twelve-month period beginning on the Termination Date, (iv) Mr. Spaeth to remain eligible to participate in the various health and welfare benefit plans maintained by HRB in accordance with the Severance Plan, (v) 223,883 stock options (which were granted previously and scheduled to vest between the Termination Date and July 2, 2008) to vest and become exercisable as of the Termination Date, (vi) restrictions on 36,667 shares of Common Stock (which were granted previously and are scheduled to lapse between the Termination Date and July 2, 2008) to terminate as of the Termination Date, resulting in such shares becoming fully vested as of the Termination Date, (vii) Mr. Spaeth to forfeit all performance shares awarded to him by HRB, (viii) HRB to pay for outplacement services for Mr. Spaeth for 12 months, and (ix) Mr. Spaeth to, among other things, release the Company and its subsidiaries from any and all claims.

OTHER ARRANGEMENTS – Stock option agreements entered into on or after June 30, 1996 between the Company and the recipients of stock options granted pursuant to the 1993 Long-Term Executive Compensation Plan and the 2003 Long-Term Executive Compensation Plan contain provisions that accelerate the vesting of options held more than six months in the event of certain changes in control. For purposes of such agreements, changes in control include (i) the purchase or other acquisition by a person, entity or group of persons of beneficial ownership of 20% or more of the Company’s voting securities, (ii) the turnover of more than a majority of the directors on the Board of Directors as a result of a proxy contest or series of contests, (iii) either approval (for agreements entered into prior to June 30, 2001) by the Company’s shareholders or completion (for agreements entered into on or after June 30, 2001) of (A) a reorganization or consolidation such that the shareholders immediately prior to the reorganization or consolidation do not, immediately after such reorganization or consolidation, own more than 50% of the voting securities of the reorganized or consolidated organization, or (B) the sale of all or substantially all of the assets of the Company, or (iv) approval by the Company’s shareholders of a liquidation or dissolution of the Company.

   The DC Plan provides that Company contributions to a participant’s account become fully vested upon a “change of control” of the Company. For purposes of the DC Plan, a change of control occurs when: (i) 50% or more of the Company’s voting stock is acquired or beneficially owned by any person or entity or group of persons or entities acting in concert, (ii) a majority of directors of the Company are persons other than persons (A) for whose election proxies were solicited by the Board of Directors, or (B) who are then serving as directors

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appointed by the Board of Directors to fill vacancies on the Board of Directors caused by death or resignation (but not removal) or to fill newly-created director positions, (iii) the Company merges of consolidates with or into another corporation, (iv) the Company’s shareholders exchange, pursuant to a statutory exchange of shares of the Company’s voting stock held by the Company’s shareholders immediately prior to the exchange, shares of voting stock of the Company for shares of another corporation, (v) the sale of all or substantially all of the assets of the Company, or (vi) the Company liquidates or dissolves.

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL –

The following table summarizes the potential payments our Named Executive Officers would receive in the event of termination or a change of control of the Company. This table assumes the relevant triggering event occurred on April 30, 2007.