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Notes Receivable and Allowances for Credit Losses | 3 Months Ended
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Oct. 31, 2025
Receivables [Abstract] |
Notes Receivable and Allowances for Credit Losses |
4. Notes Receivable and Allowances for Credit Losses
As of October 31, 2025 and July 31, 2025, our notes receivable portfolio consisted of notes receivable held for investment, including small and mid-market business and consumer loans, and notes receivable held for sale, consisting of small and mid-market business loans. We classify notes receivable as held for investment when we have both the intent and ability to hold for the foreseeable future or until maturity or payoff. We classify notes receivable as held for sale when we have the intent and ability to sell substantially all of our rights and interests in a qualified loan to a third-party investor. A note receivable that is initially designated as held for sale or held for investment may be reclassified when our intent for that individual note receivable changes. When a note receivable held for investment is reclassified to held for sale and recorded at the lower of amortized cost or fair value, the related allowance for credit losses for that note receivable is released, and any adjustment to record the note receivable at the lower of amortized cost or fair value is recorded.
Notes Receivable Held for Investment
Business loans. We provide financing to small and mid-market businesses via term loans (business loans) that we originate through an originating bank partner. During the three months ended October 31, 2025 and October 31, 2024, we purchased business loans from our originating bank partner with principal balances in the amount of $1.3 billion and $650 million, respectively. As of October 31, 2025, we had commitments to purchase $36 million in business loans that were originated on or prior to October 31, 2025. The business loans are not secured and are recorded at amortized cost, which includes the unpaid principal balances net of any related deferred origination costs and fees, discounts, purchase premiums, and allowance for credit losses. As of October 31, 2025 and July 31, 2025, the net balance of business loans held for investment was $1.7 billion and $1.5 billion, respectively, which is net of an allowance for credit losses of $112 million and $100 million, respectively. The current portion is included in notes receivable held for investment and the long-term portion is included in other assets on our condensed consolidated balance sheets. Interest income is earned on business loans purchased and held for investment in accordance with the specified period of time and defined interest rate noted in the loan contract. Interest income is recorded net of amortized direct origination costs and fees, discounts, and purchase premiums and is included in service revenue in our condensed consolidated statements of operations. Interest income was not material for all periods presented. Consumer loans. We provide refund advance loans to eligible TurboTax customers based on the customer's anticipated income tax refund at no cost to the customer, and other consumer loans (consumer loans). The refund advance loans are repaid from the customer's income tax refund, which is generally received within three to four weeks after acceptance of the customer's income tax return by the Internal Revenue Service (IRS). We partner with third-party issuing banks to originate the consumer loans and subsequently purchase those consumer loans. The consumer loans are not secured and are recorded at amortized cost, net of any related deferred origination costs and fees, discounts, purchase premiums, and allowance for credit losses. Refund advance and other consumer loans were not material as of October 31, 2025 and July 31, 2025. Allowance for credit losses. We maintain an allowance for credit losses on notes receivable held for investment to reserve for expected credit losses in the notes receivable portfolio. The allowance for credit losses is determined based on our current estimate of expected credit losses, historical credit losses, estimates of recoveries, and future expectations as of each balance sheet date. Adjustments to the allowance each period for changes in our estimate of lifetime expected credit losses are recognized in earnings through the provision for credit losses included in cost of service revenue in our condensed consolidated statements of operations. We evaluate the creditworthiness of our notes receivable portfolio on a pooled basis when shared credit risk characteristics exist. The allowance for credit losses is subjective and requires management estimates, including such factors as known and inherent risks in the business loan portfolio, use of historical credit losses to estimate expected credit losses, adverse situations that may affect borrowers' ability to repay, and current and forecasted economic conditions. Other factors considered may include uncertainties in forecasting, subjective application of modeling techniques, changes in portfolio composition, seasonality, business conditions, and emerging trends. For our business loan portfolio, expected credit losses are measured based on a credit loss forecasting model and calculated by applying loss curves derived from loan-level risk segment and term mixes, aggregated at monthly business loan vintages. Loss curves are estimated based on a combination of empirical loss curve data and management judgment. The loss rates and underlying models are updated periodically to reflect factors such as actual loan performance and changes in assumptions based on the credit risk characteristics of the business loan portfolio. We use empirical data and management judgment to estimate losses for new credit tests or products for which we do not have enough history. We consider a business loan to be delinquent when the payments are one day past due. We place delinquent business loans on nonaccrual status and stop accruing interest income. Business loans are returned to accrual status if they are brought current or have performed in accordance with the contractual terms for a reasonable period of time and, in our judgment, will continue to make periodic principal and interest payments as per contractual terms. Previously recognized interest receivable from charged-off business loans that is accrued but not collected from the consumers is reversed. As of October 31, 2025 and July 31, 2025, the amortized cost basis for delinquent business loans held for investment and the balance of business loans held for investment on a nonaccrual status were not material. The interest income on nonaccrual business loans recognized on a cash basis for the three months ended October 31, 2025 and 2024 was not material. The changes in the allowance for credit losses for our business loan portfolio for the three months ended October 31, 2025 and 2024 were as shown in the following table.
| Three Months Ended
(In millions) | October 31, 2025 |  | October 31, 2024
Beginning balance | $ | 100 |  |  | $ | 62 |
Provision for expected credit losses | 38 |  |  | 21 |
Charge-offs | (31) |  |  | (16) |
Recoveries | 5 |  |  | 2 |
Ending balance | $ | 112 |  |  | $ | 69 |
For our consumer loan portfolio, we maintain an allowance for credit losses to reserve for potentially uncollectible refund advance loans and other consumer loans. The allowance for credit losses for refund advance loans is determined based on expected funding of refunds by the IRS using historical trends and future expectations. The allowance for credit losses on refund advance loans and other consumer loans was not material as of October 31, 2025 and July 31, 2025. When available information confirms that specific notes receivable or portions thereof are uncollectable, identified amounts are charged off against the allowance for credit losses. Notes receivable are charged off in accordance with our charge-off policy when the contractual principal becomes 120 days past due or when other charge-off policy requirements are met. Subsequent recoveries of the unpaid principal balance, if any, are credited to the allowance for credit losses.
Notes Receivable Held for Sale
Business loans. We have entered into multiple forward flow arrangements with institutional investors that facilitate the sale of participation interests in eligible unsecured business loans. These arrangements have varying terms, with expiration dates ranging from 2027 to 2029. Notes receivable held for sale are recorded at the lower of amortized cost or fair value determined on an individual note receivable basis. As of October 31, 2025, the balance of notes receivable held for sale was $48 million and is included in notes receivable held for sale on our condensed consolidated balance sheets. As of July 31, 2025, we held no notes receivable for sale. The total unpaid principal balance of business loans sold during the three months ended October 31, 2025 and October 31, 2024 amounted to $205 million and $106 million, respectively. For the three months ended October 31, 2025 and October 31, 2024, gains on sales of business loans and servicing income were not material.

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