Computer Chronicles Revisited 80 — The Tax Advantage, MacInTax, TurboTax, and PC/Tax Cut
While annual-release franchises are now a common feature of computer games–think Madden or Call of Duty–the practice arguably originated with tax preparation software. After all, tax laws (and tax forms) in the United States change every year, so the software must be constantly updated. This fact made tax preparation a lucrative field for small software companies to enter during the 1980s, when the personal computer market was still struggling to find a foothold in the home.
This next Computer Chronicles episode from February 1987 focused on four different tax preparation programs, all of which were made by relatively small companies. Stewart Cheifet opened by showing Gary Kildall an Internal Revenue Service online database containing tax information (running on a Leading Edge PC.) Cheifet said this was a pretty valuable database. You could get virtually any IRS tax publication and download tax forms, which beat going to an office and waiting in line or calling on the phone.
Cheifet said that tax preparation software seemed like the kind of thing that might get people to buy a home computer. Kildall replied it was one of the components of that sale. It was difficult to sell a home computer just for tax preparation. But every family had to do taxes, so that program could pay for itself and even earn you money back.
Cheifet noted that tax preparation seemed like a good case for the use of CD-ROM technology. Kildall, who at the time ran KnowledgeSet, a CD-ROM software company, joked that Cheifet had just given him a new product idea. But he agreed that online services like the IRS database could be replaced by CD-ROM fairly well, especially given the annual changes to the tax code.
H&R Block Experimented with Online Filing
Wendy Woods presented her first report, which featured some B-roll footage of people getting their taxes done at an H&R Block center in Sacramento, California. Woods said that for most taxpayers, the month of April was not something to look forward to. Preparations for the inevitable April 15 filing deadline brought to mind accountants, adding machines, and stacks of forms to fill out and mail, even if you were just expecting a refund.
This year, Woods said, there was some good news for certain taxpayers, thanks to the arrival of electronic filing. This Sacramento H&R Block office was one of a handful across the country that was taking part in a pilot program allowing taxpayers to file their returns online. At present, only those expecting a refund could file this way. But the IRS hoped to expand the system if it proved successful.
Woods said that electronic filing still required a fully prepared return. Once the information was verified, the return was attached to a special IRS form and taken to H&R Block’s data processing center, where it was transferred directly to IRS computers. The software wouldn’t look unusual to anyone who had filed taxes, as most screens duplicated the appearance of standard forms and therefore only required transferring names and numbers from the paper to the screen. The operator simply picked the appropriate form from the main menu and filled in the blanks. There was even a spot for the signature, although the IRS wanted each filer to sign with pen and paper–at least until the computers offered a foolproof method of identifying signatures.
Electronic filing required less paper and less time in the mail, Woods added, which meant faster processing for the taxpayer and the IRS. Best of all, it meant getting your refund check about three weeks sooner.
Tax Advantage Offered Support on Multiple Platforms
Henry H. Hilton joined Cheifet and Kildall for the first studio segment. Hilton was president of Double Eagle Software. He was also the co-author (with Harry Koons) of Double Eagle’s The Tax Advantage, a tax preparation program for the Apple II, IBM PC, Atari ST, and Commodore 64.
Kildall asked Hilton how he got into the tax preparation software business. Hilton said back in 1980, he and Koons had purchased Apple II and Atari 8-bit computers, respectively, and they did their taxes that year using VisiCalc spreadsheets. And they decided then there must be a better way. Eventually, they developed Tax Advantage and before long found a company that was willing to publish it. This was now the fifth year they’d been doing the program.
Kildall asked for a demonstration of Tax Advantage. Hilton pulled up a copy of a sample return running on the in-studio computer. (It looks to me like an Apple II but I’m not certain.) He explained that one of the program’s key features was the ability to itemize almost any line on a 1040, the standard form used for personal income tax returns. For example, line 7 asked for income from “wages, tips, etc.” Hilton had entered separate line items for both the taxpayer and their spouse’s respective earnings under this heading. The sum of the two was then displayed in the upper right-hand corner. He quit back into the main 1040 screen, which showed the final line 7 total. Hilton then typed a new line 7 amount directly in this main screen to show how the software automatically recalculated the user’s tax bracket (what percentage of income they owed) and tax liability. There was also a “reverse” feature to undo that change.
Hilton next showed that you could type in a specific line number on the main screen. He typed “34” to go to line 34, which displayed Schedule A deductions from taxable income. Cheifet clarified these line numbers corresponded to the actual 1040 form. Hilton said that was correct. He then pulled up Schedule A, which took a few moments to load from the floppy disk. While it was loading, Hilton noted Tax Advantage ran on all Atari 8-bit computers, the Atari ST, all the IBM PCs and compatibles, and the Apple II line. Cheifet said the software was then aimed at the home user. Hilton said yes, but it turned out that his research suggested about 15 percent of the customers who bought Tax Advantage were themselves tax preparers.
Hilton continued with his demo, showing the Schedule A loaded from disk. He entered some additional sample data. Kildall asked if you could actually print out the final data on a form. Hilton said the user could print out a “draft” form that was useful for making notes and with the exception of the 1040, Tax Advantage could print out the final schedules in an IRS-acceptable facsimile format. For the 1040 itself, the user would have to align an actual IRS form in their printer to match up with the program’s data.
Printing IRS-Accepted Forms from a Macintosh
Susan Morgan joined Cheifet and Kildall for the next segment. Morgan was president of SoftView, Inc. Her company published MacInTax, which as you can probably guess was a tax preparation program for the Apple Macintosh.
Kildall asked about the impact of home tax preparation software on professional preparers. Did they like that or not? Morgan said some of them did. The tax preparation packages for the home sometimes could be used for a person to organize their information, which they then took to a professional to do the hard stuff. But most people who used tax preparation software probably didn’t go to professionals anyway.
Cheifet asked for a demonstration of MacInTax on a Macintosh Plus in the studio. The program was already running and displayed a graphical recreation of the 1986 IRS 1040 form. Morgan showed how you could point-and-click on a line on the form and enter data directly. Hitting “return” automatically moved the cursor to the next field. The software could also format data as the user typed, for example inserting the dashes into a Social Security number. You could also point-and-click on the form’s check boxes.
Morgan next scrolled down on the 1040 to enter income data. She reiterated the software automatically formatted data to insert the commas and decimal points in dollar figures. And each time the user hit “return,” the program automatically recomputed all of the totals. Another feature was itemization. You could break down a total. Double clicking on a field pulled up an itemization window. For her example, she itemized alimony payments (from multiple ex-husbands) for line 11 on the 1040. Once the window was closed, all of the totals on the main form updated.
MacInTax also had the IRS instruction booklet stored online–meaning on the software, not on the Internet–so if you clicked on a line it would pull up the corresponding instruction in a separate window. The program also included 24 IRS schedules and 15 specially designed worksheets to assist with computations. The names and Social Security numbers from the main 1040 were automatically transferred to these schedules and worksheets.
Cheifet clarified that you could import data into MacInTax. Morgan said that was correct. That was a brand new feature of the program. You could import data from an accounting package, spreadsheet, database, or personal finance software–anything that could store text files. Morgan demonstrated this by importing data from an unspecified accounting package. The imported data came up in a separate window, and you could drag-and-drop individual data items from that window into the main 1040 form.
Kildall asked if the user could print out the completed forms on a laser printer. Morgan said yes. You could also use an Apple ImageWriter (a dot matrix printer). She demonstrated the print function of MacInTax, which she said could print the finished documents out on plain paper. The final printout mimicked IRS forms and was actually approved by the IRS. So you could sign the printed form and file it with the IRS. Morgan added that this was the first time the IRS had allowed this.
Cheifet asked about other forms and schedules. Morgan said MacInTax could do all IRS forms. Kildall asked about state income tax forms. Morgan said there was a California state supplement which could also print out approved forms. Kildall asked if MacInTax converted the federal data to the state form. Morgan said yes, the software handled that data conversion automatically.
Cheifet asked what would happen if a taxpayer was audited. Could you walk into the IRS office with your floppy disk? Morgan said you could walk in with your printouts. She said an actual MacInTax user reported they were called in for an audit. He walked in with his printout and ended up not having to pay a penny.
What Did the IRS Think of Home Tax Prep Software?
Wendy Woods returned for her second segment, where she interviewed IRS public affairs spokesperson Larry Wright at the agency’s northern California office. Woods noted there were a variety of packages that taxpayers could use to prepare taxes at home. What was the IRS' position on this software? Wright said the single greatest mistake made by taxpayers was a mathematical error. And since computers were mathematically 100-percent accurate, assuming the formulas were correct, the IRS believed that filing with a computer to help you was bound to result in a higher level of accuracy and therefore more returns being accepted the first time.
Woods asked what was the biggest problem right now with the use of home tax preparation software. Wright said if the data that the taxpayer put in–or the package itself–created an error, those errors were then magnified by the number of people who purchased that particular software package. So the IRS had some concern as to the accuracy of packages that were on the market.
A lot of the packages generated forms as well as the calculations, Woods noted. What was the IRS' position on users sending in those forms? Wright said those tax packages that generated a form that does not match exactly the IRS forms were going to create problems and might not be acceptable to the agency.
Woods said the IRS recommended using the same procedure for choosing tax software as you would a doctor: ask around and get a reliable name. If you went with a fly-by-night company, you would get a fly-by-night return. And you were ultimately responsible for your own income tax.
Battle of the MS-DOS Tax Programs
Michael Chipman and James Petersen joined Cheifet and Kildall for the final segment. Chipman was president of ChipSoft, Inc., which published TurboTax. Petersen was president of Best Programs, Inc., which published PC/Tax Cut.
Kildall asked Chipman how a tax preparation program could actually save you money. Chipman said the savings came from allowing you to calculate the taxes the way you wanted to. You could “What if?” your taxes and find the best way to file. Cheifet followed up: If you did the numbers right there was only one way to do it, wasn’t there? Chipman said that wasn’t strictly true. There were many ways to file a tax return in certain cases. Some deductions could be taken on different schedules, which could affect the final tax liability. Cheifet clarified that meant looking at different tax strategies as opposed to different numbers.
Kildall turned to Petersen and asked for a demonstration of PC/Tax Cut, which was running on a Compaq Portable. Petersen said they’d been publishing the software for four years now and kept it simple. PC/Tax Cut was both a tax preparation and tax planning program. The latter was especially handy given the recent changes to the tax laws.
Petersen pulled up a sample return loaded into PC/Tax Cut. He showed how you could enter an itemized deduction for medical expenses. The software brought up an itemized list of medical expenses, such as doctors bills and medicine costs. Petersen emphasized that PC/Tax Cut did not follow the IRS forms. The program “restated” the questions and took all the formulas and calculations out of them, which made it easy for the user to enter data.
Petersen then returned to a main menu and presented a summary of the tax data, which showed all the calculations and displayed the refund the user could expect to receive. The user could then go back into the program to make corrections or print out forms. PC/Tax Cut printed out the 1040 on an IRS pre-printed form while making IRS-approved facsimile forms of the schedules. The 1040 forms came supplied with the software.
While Chipman got his demo set up, Cheifet asked Petersen if using a program like PC/Tax Cut was in lieu of going to a tax preparer, or could you use the software with a tax preparer. Petersen said for most people it was in lieu of using a tax preparer. But if you had an unusual situation and wanted somebody to give you advice, many PC/Tax Cut users brought their printouts to a tax preparer to review them.
Kildall asked if there was any liability from Best Programs' standpoint for giving “bad advice” through the software. Petersen said that issue was “in limbo.” The IRS had issued a ruling that said firms like his could be held liable as tax preparers. So for any return that contained a mistake they could be penalized up to $100. But he said Best Programs guaranteed PC/Tax Cut’s calculations for three years to the extent that the company would pay any penalty arising from a software bug. So far, he said there had not been a single claim.
Cheifet next asked Chipman to demonstrate TurboTax and explain how it was different from PC/Tax Cut. Chipman said the main difference was that TurboTax strictly adhered to the IRS forms. He felt the IRS had managed to do a pretty good job boiling down the complicated tax system and with TurboTax you only had to know one set of forms–the government’s–as opposed to learning a separate set of forms used by the software.
Chipman then showed how you could enter depreciation on the appropriate IRS form. TurboTax asked a series of questions about the asset. The software then calculated the depreciation automatically. That information was then transferred to the main tax return.
Cheifet asked for more information on how PC/Tax Cut and TurboTax could actually be used for tax planning. Chipman said that TurboTax had the new 1987 tax rules built-in to the program. That could be used to assess your tax situation throughout the year. Cheifet clarified you could be “playing” with what your return might look like under the new rules during the year. Chipman said absolutely. Petersen added that PC/Tax Cut also contained the 1987 tax rules so you could use that to estimate your tax obligations for next year. He added that more taxpayers should pay attention to that since the tax rates (brackets) had changed and a lot of people could end up paying more taxes.
Hackers Took Down Arizona Town, University President
Stewart Cheifet presented this week’s “Random Access,” which was recorded in February 1987.
- Compaq announced the Portable III, an IBM PC-AT compatible running at 12 MHz. Cheifet said the basic model came with 640 KB of RAM and a 1.2 MB floppy disk drive, and there were optional 20 MB or 40 MB hard disks available. The Portable III was considered a “luggable” at 18 pounds and prices would range from $4,000 to $6,000.
- British computer manufacturer Apricot announced a new Intel 386 machine for $4,500. Cheifet said it came with 1 MB of RAM and a 30 MB hard drive and was bundled with MS-DOS, GW-Basic and Microsoft Windows with a word processor and spreadsheet.
- Sinclair announced an IBM-compatible portable computer with an LCD screen and a Zilog Z80 microprocessor.
- Scientists at the University of South Carolina and New York University told the American Association for the Advancement of Science that progress had been made in the design of “neurochips,” i.e., computer chips based on the architecture of the human brain. Cheifet said the scientists predicted that within 5 to 10 years such chips would be used to help paraplegics walk.
- New word processors like Microsoft Word and MindWrite had extensive page layout and graphics functions built-in, which could make true Steve Jobs' prediction that desktop publishing would cease to exist as a separate software category within the next two years.
- Paul Schindler reviewed UX-Basic (Human Computing Resources, $400), a professional BASIC language development tool.
- A new program called W-4 Helper guided users through the new IRS withholding forms.
- Michigan’s treasury department installed a new computer to answer taxpayer questions about the status of their refund.
- A hacker got into the computers for the town of Prescott Valley, Arizona, and erased all of the town’s financial records.
- The University of Charleston’s student newspaper printed the personal financial data of the school’s president, which had been provided by a hacker who broke into the computer network.
- Rutgers University professor Edward Fry said children should no longer be taught cursive writing. Instead, children should be taught to write in block letters in first and second grade, then be taught computer keyboards starting in the third grade.
How TurboTax Stood Alone Against All Challengers
Of the four products discussed in this episode, TurboTax is the one that endured. Indeed, TurboTax today is one of the major players in what is now predominantly the market for online income tax filing services. Intuit is now the company behind TurboTax, and the story of how it acquired that product–and by extension 2 of the other 3 tax packages demonstrated in this episode–will be the main focus for the rest of this post.
A Split Tax Advantage
But first let’s address the one outlier, Double Eagle Software’s The Tax Advantage. This program likely debuted on the market sometime in late 1983. It was originally published by Arrays, Inc., under the brand name of Continental Software. Henry Hilton and Harry Koons authored the program and licensed it to Arrays. Prior to getting into tax software, Hilton had a long career as a nuclear physicist, having earned his doctorate from Yale in 1960 and spending many years with the Aerospace Corporation’s Space Physics Laboratory.
After updating Tax Advantage for a few years, Hilton and Koons broke with Continental in 1986. Hilton and Koons claimed that Arrays failed to pay royalties on the 1985 edition of Tax Advantage. An Arrays executive told InfoWorld that the company terminated its licensing agreement with Hilton and Koons because a large number of copies of Tax Advantage were returned unsold. Hilton and Koons then formed Double Eagle Software in August 1986. For some reason, Arrays allowed Double Eagle to continue using The Tax Advantage name for its product; at the same time, Arrays published a completely different program under the name The Tax Advantage 2.
It seems that neither company benefited from the split in the long run. Arrays went out of business in the late 1980s. Double Eagle closed up shop at the end of 1991. Hilton died a few years later, in February 1998, at the age of 67.
ChipSoft, SoftView Dominated Early Tax Prep Market
The other three companies profiled in this episode all had remarkably similar origin stories. The first on the scene was Best Programs, Inc. James Petersen co-founded Best Programs in November 1982 with his brother, Ken Petersen. It was a typical garage startup. James Petersen’s background was in naval intelligence, not computer software, but he apparently decided personal finance software would be a good market to get his feet wet. PC/Tax Cut and PC/Personal Finance Program were among the company’s first products, coming out sometime in early 1984.
It was also in 1984 that ChipSoft entered the picture. Michael Chipman had been working as a programmer for Scientific Applications International Corporation. He told the Los Angeles Times that he purchased an IBM PC in late 1983 specifically to help him prepare his tax return. But he said that when he went looking for a tax program he found them all “overpriced or underpowered.” That’s when he decided to write his own program–what became TurboTax–over the next six months. Chipman quit his job at Scientific Applications in mid-1984 and formed ChipSoft with his spouse, Evy Chapman, which like Best Programs was originally a garage startup.
Our final company, SoftView, was also started by a husband-and-wife team. Susan Morgan told the Los Angeles Times that the whole thing began when she was working for the business equipment manufacturer Burroughs Corporation. In 1984, Burroughs mistakenly paid Morgan an additional $4,000 in maternity benefits. She spent the money on a new Macintosh, which her husband, Michael Morgan, used to develop MacInTax. (Morgan said she later repaid Burroughs.)
The Morgans then raised about $100,000 from local computer clubs and relatives, which enabled them to produce and sell 500 copies of MacInTax in early 1985. Morgan formally incorporated SoftView in June 1985.
TurboTax and MacInTax quickly became the dominant consumer tax preparation programs for the MS-DOS and Macintosh platforms, respectively. A few months after Michael Chipman’s appearance on Chronicles, ChipSoft moved into a new 30,000 square foot facility in San Diego. Another move followed into an 80,000 square foot office park just two years later in 1989.
By that point, Chipman decided the company had become too big and complex for him to run anymore. The Chipmans sold their stock in ChipSoft to a private equity firm, Warburg Pincus, in early 1990 for $25 million. Chipman remained on as chairman of the board. But Warburg Pincus brought in a new CEO, Charles H. Gaylord, Jr., a former oil and transportation industry executive; and a new president, William H. Harris, who had been an executive vice president in charge of business operations for U.S. News & World Report. (Harris later served as the founding CEO of PayPal.)
Harris convinced Gaylord early on that TurboTax, which even in 1990 was still exclusively an MS-DOS program, had to get onto the Macintosh and Windows platforms. With respect to the former, the simplest way to accomplish their goal was to buy the existing leader, which just happened to be Susan Morgan’s MacInTax.
Indeed, in the early 1990s MacInTax held a virtual monopoly on Macintosh tax preparation software, with some reports suggesting a market share as high as 95 percent. And it seemed that like the Chipmans, the Morgans were ready to cash out. Susan Morgan had actually turned over day-to-day operations at Softview to a new president, Kathleen Lane, in 1988. And in January 1991, Morgan announced at that year’s MacWorld Expo that she had decided to leave the company altogether “to pursue other interests.” A few months later, the San Francisco Examiner reported that Morgan joined SBT Corporation, a privately held software company, to head its new Macintosh division.
With Morgan moving on, she and her husband agreed to sell SoftView to ChipSoft in July 1991. (MacInTax continued as a standalone program for awhile before being absorbed into a cross-platform TurboTax completely by the mid-1990s.) Around that same time, Gaylord and Harris decided to approach Intuit about a possible merger. Intuit wasn’t in the tax software business, but its personal finance program Quicken was the market leader in that category.
Like the other companies discussed here, Intuit was started by two people, although they were not related by blood or marriage. Scott Cook was a former brand manager at Procter & Gamble–he oversaw the marketing of Crisco–who had moved to California in the early 1980s to work for the management consulting firm Bain and Company. Cook’s wife, Signe Ostby, took a job at Software Publishing Corporation, which published the pfs business software series. According to Cook, Oltsby inspired him to create Quicken when she complained about having to do the family’s bills.
Not having any background in programming or starting capital, Cook went to nearby Stanford University to post some fliers looking for cheap programmers to bring his idea to life. While searching for a bulletin board, Cook ran into a student, Tom Proulx, who immediately took an interest in the concept. Proulx told Cook he wanted to be a partner rather than an employee, however, and Cook agreed.
I’ll no doubt delve more into the history of Intuit and Quicken in a future post. But suffice to say that while it took Quicken a few years to take off, by 1991 it was the number-one personal finance program. What Intuit lacked, however, was any presence in tax preparation software. Proulx wanted to change that by acquiring an existing program. And his first choice was not ChipSoft’s TurboTax, but rather a less popular alternative that was originally called Ask Dan About Your Taxes.
This brings yet another company into the mix: MECA Software. The Connecticut-based MECA was basically the number-two company in both personal finance and tax preparation software. On the finance side, MECA published Andrew Tobias' Managing Your Money, named for a well-known finance journalist and author. This was then followed with Andrew Tobias' TaxCut.
Now you might be asking yourself, “Wait, is this the same thing as PC/TaxCut?” And the answer is, “yes and no.” To be honest, the timeline gets a bit muddled here. What apparently happened was that the Petersens decided to focus Best Programs on software for tax professionals rather than consumers. So they sold TaxCut to MECA, which re-branded it under the “Andrew Tobias” name. But then MECA took a page from Continental Software and decided to license a new code base for the TaxCut name from Legal Knowledge Systems, a one-man software company started by former tax attorney Daniel Caine. That would be the “Dan” in Ask Dan About Your Taxes.
So to recap, in 1991, MECA Software publishes a tax preparation program that uses the TaxCut name it bought from Best Programs combined with the code it licensed from Dan Caine. Meanwhile, over at Intuit, Tom Proulx wants to acquire Caine’s code so that his company can get into the tax preparation software market.
The MECA Affair
This all set the stage for a two-year period between 1993 and 1995 when things got really wacky. MECA, which had gone public in 1990, decided to put itself up for sale. The two bidders were Intuit and ChipSoft. Both companies sent representatives to a meeting held at a Connecticut hotel over the weekend of April 10-11, 1993, to present their offers to MECA’s board.
But a week before that meeting, Proulx and Intuit decided to hedge their bets by acquiring the rights to Dan Caine’s code. Intuit signed an option to acquire Legal Knowledge Systems outright from Caine–a deal that could only be stopped if both parties agreed. Caine and Proulx reportedly negotiated in an all-night session that ended just 20 minutes before Caine was scheduled to meet Gaylord and Harris from ChipSoft, who were basically only interested in acquiring Caine’s code so they could bury it.
Fast forward to the Connecticut meeting a week later. Intuit offered to purchase MECA in an all-stock transaction valued at $63 million. ChipSoft offered $60 million in cash. The MECA board accepted the ChipSoft offer. It was only then that ChipSoft learned about Caine’s option agreement with Intuit.
The story might have ended here with ChipSoft acquiring MECA and Intuit getting Caine’s program as a consolation prize. But then the U.S. Justice Department intervened. In July 1993, the Department’s Antitrust Division announced plans to oppose the merger, as it would effectively give ChipSoft 75 percent of the tax preparation software market. Following the DOJ announcement, MECA and ChipSoft decided to abandon the deal.
Shortly afterwards, ChipSoft’s Bill Harris met with his counterparts at Intuit to propose a merger between their two companies. Despite the friction described above, the two companies were on friendly terms. Intuit had previously bundled copies of TurboTax with Quicken for sale during the holiday season. And Proulx was still convinced that Intuit needed to be in the tax preparation business. While he still preferred Cain’s software to TurboTaxIntuit ultimately decided that ChipSoft’s strong management team was more valuable.
The two companies announced a deal on September 1, 1993, just two months after ChipSoft abandoned the MECA acquisition. The all-stock transaction was valued at around $232 million. Basically, ChipSoft’s shareholders acquired a combined 39 percent stake in the combined company, which retained the Intuit name. ChipSoft was then renamed Intuit South.
A few weeks later, H&R Block acquired MECA Software–including the TaxCut name–in a $32.2 million stock transaction. Dan Caine also agreed to a buyout of his option with Intuit and subsequently joined H&R Block as its vice president for consumer tax software.
Microsoft’s Failed Takeover Attempt
With the ChipSoft deal completed, Scott Cook announced at the fall 1993 COMDEX show that he planned to step down as Intuit’s CEO while remaining chairman of the board. John Doerr, a former Chronicles guest, venture capitalist, and Intuit board member, recommended Bill Campbell to take over for Cook. Campbell, a former Apple marketing executive who served as CEO of Claris and GO Corporation before joining Intuit, decided to continue the acquisition spree well into 1994. Of note, Intuit acquired Parsons Technology, publisher of the tax preparation program Personal Tax Edge, which was then shut down; and National Payments Clearinghouse, a company that provided electronic bill payment services.
Both of these acquisitions were defensive moves aimed at stopping Microsoft from gaining a foothold in the personal finance software market. (You knew that Bill Gates would come into this story at some point.) Microsoft had entered the field with Microsoft Money in 1991, but it lagged behind Quicken in popularity. Intuit had bought Parsons so that Microsoft couldn’t buy it. And National Payments Clearinghouse just happened to be the company that provided the back-end services for Microsoft Money’s bill payment feature.
Bill Gates took the hint. In September 1994, he sent Cook an email suggesting the two companies should discuss a merger. After a couple of weeks of negotiations, Microsoft announced a deal to purchase Intuit on October 13, 1994, in a $1.5 billion stock swap. The plan was for Intuit to remain an independent unit within Microsoft overseeing financial products, while Microsoft would sell Money to a third party.
Once again, however, the Justice Department’s Antitrust Division stepped in and said “no.” It turned out the timing worked out poorly for Microsoft. In February 1995, a federal judge rejected a proposed antitrust settlement between the Antitrust Division and Microsoft dealing with alleged abuses of the company’s operating system monopoly. Chastised for being too lenient with Gates and company, the Antitrust Division concluded that it had no choice but to challenge the Intuit acquisition. Microsoft then decided it wasn’t worth a fight, so they abandoned the deal on May 19, 1995.
As a postscript, the day after Microsoft left Intuit at the proverbial altar, Scott Cook received a delivery of festive balloons from America Online CEO Steve Case. Case proposed his own partnership with Intuit that would have had each company purchase a 20 percent stake in the other. That deal never happened, but it did signal the coming changes to the tax preparation software market as the transition began to online filing.
Best Programs Ended Up with British Firm
Just to wrap things up, let’s briefly discuss what happened to Best Programs, Inc. In April 1994, Best Programs sold its remaining tax software business–this was for the professional preparer market as opposed to individuals–to Intuit. Three years later, in October 1997, the company changed its name to Best Software, Inc., and went public, raising $54 million in its initial offering. By this point, Best Software was primarily selling human resources and payroll management software to businesses. In January 2000, the United Kingdom-based Sage Group PLC purchased Best Software for $445 million in cash. Thereafter, the company became a U.S. subsidiary of Sage, which is still in business today under the Sage name.
After the sale, James Petersen retired to Jackson, Wyoming, and pursued his hobby in digital photography for several years before passing away in October 2006 at the age of 62.
The other two guests from this episode, Michael Chipman and Susan Morgan, are still alive as of this writing. Morgan decided to pursue a career change into law. She earned her law degree from Santa Clara University School of Law in 1998. After working in corporate law firms during the late 1990s and 2000s, she started her own practice, Morgan Legal Services, in 2012. Morgan and her husband also started a private equity analysis firm, Equilytics, in 2005.
Michael Chipman largely retired after the sale of ChipSoft to Intuit. He reemerged in the public eye in February 2002, when he and three other partners agreed to invest $160 million over 10 years in the Arizona Diamondbacks baseball team. Two years later, in March 2004, Chipman and his partners acquired control of the team from founding owner Jerry Colangelo. Chipman remains a general partner to the present day.
Notes from the Random Access File
- This episode is available at the Internet Archive and has an original broadcast date of February 19, 1987.
- Larry Wright continued to work as an IRS spokesperson well into the 2000s.
- John Gibson of the University of South Carolina and Andras Pellionisz of New York University were the scientists who made the “neurochip” announcement. In addition to helping paraplegics walk again, the scientists claimed their technology would “enable the building of robots that can see and feel,” according to the Associated Press.
- Dr. Edward Fry was director of the Reading Center for Rutgers' Graduate School of Education when he made his pronouncement about children learning keyboards instead of cursive writing. In a Rutgers press release, he added that by the year 2000 “computer terminals will be everywhere, including most businesses and homes.” Fry taught at Rutgers for 22 years before retiring and died in September 2010 at the age of 85.
- In addition to the usual stack of old newspaper articles, I did want to mention a couple of key sources for this blog post: Suzanne Taylor and Kathy Schroeder’s 2003 book In$ide Intuit: How the Makers of Quicken Beat Microsoft and Revolutionized an Entire Industry; and oral histories given by Scott Cook, Tom Proulx, and Eric Dunn of Intuit to the Computer History Museum.