Pacific Capital Bancorp Inc. has completed the sale of its tax division to a private-equity firm but said it is "highly unlikely" that the deal would let its tax-preparation partners offer more tax loans this year.

The $7.9 billion-asset Santa Barbara, Calif., company unloaded the unit after regulators blocked it from making tax refund anticipation loans. It said late Thursday that it had closed the sale "to Santa Barbara Tax Products Group LLC, a new company formed by the existing management team of the tax division with financial backing from an investment firm."

Pacific Capital did not identify the private-equity company, which is paying up to $10 million for the tax division.

The banking company received $5 million in cash up-front and is to get the remaining payment March 15, provided it honors a commitment to provide "transition support services" to the new company during the tax season.

The division earned about $220 million in fees on the sale of the loans and a related product, refund anticipation checks, during the first nine months of 2009.

Pacific Capital could get another $15 million to $25 million from the sale if the new company funds more refund anticipation loans than expected this year.

Yet according to a regulatory filing Thursday, "management believes it is highly unlikely that any further cash payments will be made … based on the number of refund anticipation loans currently expected to be processed."

This forecast will do little to improve the prospects of Jackson Hewitt Tax Service Inc., a partner that needs funding for more than half its refund anticipation loans this year.

The nation's second-largest tax preparation company said Wednesday that it did not expect to have this funding in place by the start of the tax season on Friday. In a regulatory filing Thursday, Jackson Hewitt acknowledged the sale of Pacific Capital's tax division and did not revise its funding outlook.

George Leis, Pacific Capital's president and chief executive, said in a press release that the sale will let Pacific Capital return to "our traditional community bank business model." He acknowledged the regulatory pressures that led his company to sell the unit and which may bar other companies from continuing to offer tax-season financial products.

"Recent changes in the regulatory and legislative environments have significantly altered the industry," he said, "including Pacific Capital Bancorp's ability to offer RALs this tax season, which thereby reduced the value of the business to both Pacific Capital Bancorp and potential buyers."

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