updated 12/11/2007 8:22:38 AM ET 2007-12-11T13:22:38

H&R Block Inc., the nation’s largest tax preparer, said in a preliminary earnings report Tuesday that it expected a huge second-quarter loss as it continued to wrestle with its disintegrating mortgage arm.

The company said it was filing its quarterly report late, blaming the decision earlier this fall to change accounting firms.

But it said it expected a net loss of $502.3 million, or $1.55 per share, for the quarter ending Oct. 31, compared with a loss of $156.5 million, or 49 cents per share, during the same period a year ago.

Of that loss, $366.2 million, or $1.13 per share, came from discontinued operations, including much of its Option One Mortgage Corp., which has suffered as an increase in borrower defaults and a drying up of credit markets caused dozens of lenders to disappear.

The company posted a loss from continuing operations of $136.1 million, or 42 cents per share, compared with a loss of $121 million, or 38 cents, during the same period a year ago.

H&R Block typically has a loss in its second quarter as it makes most of its revenue and earnings during the January-April tax filing season.

The company said its discontinued operations had a pretax loss of $551.2 million, including $367 million in operating losses and losses on sales of mortgage assets, $123 million to adjust the value of remaining mortgage origination and servicing assets and $61 million in costs for restructuring Option One’s loan origination operations.

H&R Block said last week a proposed sale of Option One to Cerberus Capital Management LP had failed and that it was scrapping most of the business.

The company said it expected to file its quarterly report by Friday.

It said the delay came as it switched to auditing firm Deloitte & Touche LLP in October, shortly before the quarter ended and the firm needed more time to perform its work.

H&R Block changed auditors after the election in September of dissident shareholder Richard Breeden to the company’s board of directors. Breeden is serving as a court-appointed monitor for KPMG, the company’s previous auditor, and company officials worried that relationship would endanger the auditor’s independence.

Breeden has since become chairman of the company, ousting former Chairman and Chief Executive Officer Mark Ernst.

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