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* Q3 EPS $0.19 vs loss of $9.75/shr last year
* Shares sink 42 pct to life low (Rewrites paragraph 2, adds timeline, factbox)
By Brenton Cordeiro and Jochelle Mendonca
BANGALORE, March 10 (Reuters) - Jackson Hewitt Tax Service Inc said it is working with its lenders on a restructuring plan that may include a pre-packaged bankruptcy, sending the second-biggest U.S. tax preparer's shares down 42 percent to a life low.
The recent clampdown by the U.S. government on refund anticipation loans (RALs), offered by tax preparers and funded by various banks, would take away debt-laden Jackson Hewitt's most profitable product, making it tougher for the company to reverse the loss of clients.
Banking regulators like the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency consider the loans -- which are repaid by the borrowers' annual tax refund -- risky and have asked banks to stop funding them.
Republic Bancorp , which funds the loans for Jackson Hewitt, is suing the government, claiming FDIC hasn't developed a clear set of standards for these loans.
The bank wants the government to await the outcome of another proceeding evaluating the safety of its loans -- that could come within the next three months.
A win for Republic Bancorp may be Jackson Hewitt's best bet.
Jackson Hewitt's credit agreements include covenants that require it to have full funding for its RAL program.
In December, the company got its lenders to waive the full funding covenant but with the very existence of the loans being threatened, further waivers seem unlikely.
In a regulatory filing, the company said it expects an agreement with its lenders on the restructuring by April 29.
Jackson Hewitt, which had $362.3 million in outstanding debt under the credit agreement as on Jan. 31, has to pay about $25 million by July 15 besides mandatory payments of $30 million on April 30 and the remaining balance on maturity on Oct. 6.
But the company is left with less than $5 million in cash and cash equivalents, according to a regulatory filing.
Traditional tax preparers such as H&R Block Inc and Jackson Hewitt have also been losing market share to Intuit Inc's TurboTax, as more people move to "do-it-yourself" models.
Jackson Hewitt, which appointed a new chief executive in January, posted a third-quarter net income of $5.4 million, or 19 cents a share, compared with a loss of $279 million, or $9.75 a share, a year ago.
Revenue rose 4 percent to $82.5 million.
Shares of the Parsippany, New Jersey-based company fell 42 percent to 73 cents on Thursday on the New York Stock Exchange.
Larger rival H&R Block shares climbed 8 percent on Thursday, a day after it posted strong quarterly earnings and said it expected regulations to drive consolidation in the industry.
Last year, Jackson Hewitt's listing on the New York Stock Exchange hit a hiccup as its market capitalization dropped below $50 million.
However, in January, it met the requirements to restore compliance with the $1.00 minimum share price requirement for the New York Stock Exchange's continued listing standards. (Additional reporting by Aditi Sharma; Editing by Anil D'Silva, Joyjeet Das and Gopakumar Warrier)