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Attorney General Elliott Spitzer of New York sued H&R Block today, asserting that the tax preparation company did not properly disclose the high fees of a retirement savings account opened by about 600,000 people.

In his complaint filed in a New York state court in Manhattan, Mr. Spitzer said that 85 percent of the people who opened an "Express IRA" through H&R Block paid more in fees than they received in interest. The attorney general is seeking $250 million in actual damages and unspecified sum in punitive damages for violations of New York State's consumer fraud law and a "breach of the company's fiduciary duty to its clients."

"Instead of providing these families with accurate information that would have allowed them to make informed choices, H&R Block steered them into retirement accounts that actually shrank over time," Mr. Spitzer, a Democrat who is running for governor, said in a statement.

H&R Block responded that it would "fight vigorously to defend" the individual retirement accounts, which it claimed had benefited the vast majority of its customers and were a money loser for the company. Customers, 40 percent of whom never had a savings account before opening an Express IRA, have accumulated $360 million in the plans, according to the company.

Shares of H&R Block were trading down $1.10, or 5.4 percent, to $20.90 this afternoon on the New York Stock Exchange.

"Out of all the Express IRA accounts opened between 2001 and 2005, 78 percent have experienced positive net tax savings benefits and interest earnings," Robert Abrams, a former New York attorney general hired by the company to defend it, said in a statement.

"This is a positive and powerful statement of achievement," he said. "Further, this effort has not created windfall profits for H&R Block indeed the company has lost money operating this program."

In a lengthy statement, H&R Block, based in Kansas City, Mo., acknowledged that clients who maintained a small balance, closed their accounts quickly or frequently withdrew funds could lose money, but the company insisted that it properly disclosed penalties and fees to customers. It also said that it raised the interest rate in the last couple of years and eliminated a fee customers were charged for making contributions to their accounts.

Still Mr. Spitzer said many low-income account holders who only deposited a few hundred dollars in the accounts incurred several fees including a $10 annual maintenance fee, a $15 setup fee and a $15 contribution fee that cost them more than they earned in interest. More than 150,000 clients who closed their accounts were also charged undisclosed fees and $6 million in tax penalties, the attorney general said in a statement.

H&R Block pitches its Express IRA accounts to customers who come to it for tax preparation; the accounts can be opened with as little as $300 but the funds can only be invested in a money market fund, which the attorney general said paid out as little as 1 percent in interest in some years. The company waives maintenance fees for customers who enroll in an automatic savings plan of $25 or more a month or maintain a balance exceeding $1,000.

Mr. Spitzer quoted from e-mail messages between H&R Block's chief executive, Mark A. Ernst, and other managers, as evidence that the company realized its accounts were not financially beneficial to customers.

In one message prefacing a note he was forwarding from an employee, Mr. Ernst is reported to have written: "The attached note . . . reflects the general sense that I think exists that Express IRA is the right thing for our clients, but the product is designed to nickel and dime clients to the point where our field people [don't] feel as good about the product as they should . . ."

H&R Block has come under increasing scrutiny from regulators and consumer advocates as it has branched out of tax preparations to a wider range of financial services, many of which are aimed at less affluent customers.

In December, it agreed to pay $62.5 million to settle class-action lawsuits related to loans it made to customers who were expecting tax refunds. And last month, California's attorney general, Bill Lockyer, sued the company, contending it did not properly disclose the fees and interest rates associated with its tax refund loans.

In another sign of the company's ambitions beyond tax preparations, the federal Office of Thrift Supervision today granted H&R Block's application to establish a savings bank with $160 million in capital. The company plans to transfer the Express IRA accounts and $850 million in mortgages issued by two H&R Block affiliates into the new bank, which will be based in Kansas City, Mo., according to the government approval.

After reviewing H&R Block's recent legal troubles, the Office of Thrift Supervision concluded that the company and its subsidiaries "have appropriately addressed the issues raised in the lawsuits and in self-regulatory and governmental proceedings, and those matters do not cause the character and responsibility of the savings bank's organizers to be inconsistent with approval."

Eric Dash contributed reporting for this article.

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