Low-Income Americans Duped into
Paying for Free Tax Services, States Agree to Settlement
BATON ROUGE, LA – Attorney General Jeff Landry today secured $1.7 million
from the owner of TurboTax, Intuit Inc. (Intuit), for deceiving consumers into
paying for tax services that should have been free. As a result of a multistate
agreement, Intuit will pay $141 million in restitution to millions of consumers
across our Nation who were unfairly charged. In addition, Intuit must suspend
TurboTax's "free, free, free" ad campaign that lured customers with
promises of free tax preparation services, only to deceive them into paying for
services. All 50 states and the District of Columbia have signed the agreement.
“Intuit used dishonest and
deceptive practices to prey upon the least fortunate of our neighbors,” said
Attorney General Landry. “So I applaud my Consumer Protection Section for their
hard work to ensure Louisiana receives $1.7 million for consumers who were
duped into paying to file their federal tax returns.”
A multistate
investigation into Intuit began after ProPublica reported that the company was
using deceptive digital tactics to steer low-income consumers toward its
commercial products and away from federally-supported free tax services.
Intuit has offered two free
versions of TurboTax. The first, through its participation in the IRS Free File
Program, a public-private partnership with the Internal Revenue Service (IRS),
which allows taxpayers earning roughly $34,000 and members of the military to
file their taxes for free. In exchange for participating in the program, the
IRS agreed not to compete with Intuit and other tax-prep companies by providing
its own electronic tax preparation and filing services to American taxpayers.
In addition, Intuit offers a
commercial product called "TurboTax Free Edition," which is only free
for taxpayers with "simple returns" as defined by Intuit. In recent
years, TurboTax has marketed this "freemium" product aggressively, including
through ad campaigns where "free" is the most prominent or sometimes
the only selling point. In some ads, the company repeated the word
"free" dozens of times in as short as 30 seconds. However, the
TurboTax "freemium" product is only free for approximately one-third
of US taxpayers. In contrast, the IRS Free File products were free for 70
percent of taxpayers.
The investigation found that
Intuit engaged in several deceptive and unfair trade practices that limited
consumers' participation in the IRS Free File Program. The company used
confusingly similar names for both its IRS Free File product and its commercial
"freemium" product. Intuit bid on paid search advertisements to
direct consumers who were looking for the IRS Free File product to the TurboTax
"freemium" product instead. Intuit also purposefully blocked its IRS
Free File landing page from search engine results during the 2019 tax filing
season, effectively shutting out eligible taxpayers from filing their taxes for
free. Moreover, TurboTax's website included a "Products and Pricing"
page that stated it would "recommend the right tax solution," but
never displayed or recommended the IRS Free File program, even when consumers
were ineligible for the "freemium" product.
Intuit will pay $141 million in
restitution, of which roughly $2.5 million will be used for administrative fund
costs.
Under the agreement, Intuit will
provide restitution to millions of consumers who started using TurboTax's Free
Edition for tax years 2016 through 2018 and were told that they had to pay to
file even though they were eligible to file for free using the version of
TurboTax offered as part of the IRS Free File program. Consumers are expected
to receive a direct payment of approximately $30 for each year that they were
deceived into paying for filing services. Impacted consumers will automatically receive notices and a check by mail.
Intuit has also agreed to reform
its business practices, including:
·
Refraining from making misrepresentations in connection with
promoting or offering any online tax preparation products;
·
Enhancing disclosures in its advertising and marketing of free
products;
·
Designing its products to better inform users whether they will be
eligible to file their taxes for free; and
·
Refraining from requiring consumers to start their tax filing over
if they exit one of Intuit’s paid products to use a free product instead.
Intuit withdrew from the IRS Free
File program in July 2021.