Tennessee Attorney General Herbert H. Slatery III and New York Attorney General Letitia James announced on May 4 that they had obtained $141 million from TurboTax’s owner, Intuit Inc. (Intuit), for deceiving consumers into paying for tax services that should have been free.
The agreement has been signed by all 50 states as well as the District of Columbia.
In Tennessee, approximately 111,000 consumers will be eligible for payments of around $30 for each year from 2016 to 2018 that they used a paid TurboTax product when they qualified for free filing through the IRS program.
“The last thing anyone needs at tax time is more confusion and complexity over filing,” said General Slatery.
“I appreciate working with New York Attorney General Letitia James and coordinating with our fellow attorneys general on this settlement.”
An investigation into Intuit began after ProPublica reported that the company was using deceptive digital tactics to steer low-income consumers away from federally funded free tax services and toward its commercial products.
Intuit has provided two free versions of TurboTax. One example is its participation in the IRS Free File Program, a public-private partnership with the Internal Revenue Service (IRS) that allows taxpayers earning less than $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-preparation companies by offering its own electronic tax preparation and filing services to American taxpayers.
Furthermore, Intuit offers a commercial product called “TurboTax Free Edition,” which is only free for taxpayers with “simple returns” as defined by Intuit; however, this TurboTax “freemium” product is only free for about one-third of US taxpayers.
In comparison, the IRS Free File product was free for 70% of taxpayers.
The multistate investigation discovered that Intuit engaged in several deceptive and unfair trade practices that limited consumers’ participation in the IRS Free File Program.
The company caused confusion by using similar names for both its IRS Free File product and its commercial “freemium” product. Intuit paid for paid search advertisements to direct consumers looking for the IRS Free File product to the TurboTax “freemium” product instead.
During the 2019 tax filing season, Intuit also purposefully blocked its IRS Free File landing page from search engine results, effectively barring eligible taxpayers from filing their taxes for free.
Furthermore, 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, with approximately $2.5 million going to administrative fund costs.
According to the agreement, Intuit will compensate millions of customers who began using TurboTax’s Free Edition for tax years 2016 through 2018 and were told they had to pay to file even though they were eligible to file for free using the version of TurboTax that Intuit offered as part of the IRS Free File program.
Consumers are expected to receive a direct payment of around $30 for each year they were duped into paying for filing services. Consumers who are affected will receive notices and a check in the mail.
Intuit has also agreed to change its business practices, including the following:
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Not making any misrepresentations in connection with promoting or offering any online tax preparation products;
Improving disclosures in free product advertising and marketing;
Designing its products to better inform users about their eligibility to file their taxes for free.
Not requiring customers to restart their tax filing if they switch from one of Intuit’s paid products to a free product.
Intuit withdrew from the IRS Free File program in July 2021.
The multistate investigation was led by New York and Tennessee, with support from the attorneys general of Florida, Illinois, New Jersey, North Carolina, Pennsylvania, Texas, and Washington. This agreement was signed by all 50 states as well as the District of Columbia.
