Getty Images | Kimberly White
TurboTax owner Intuit “will pay $141 million in restitution to millions of consumers across the nation who were unfairly charged” and stop its “free, free, free” ad campaign “that lured customers with promises of free tax preparation services, only to deceive them into paying,” New York Attorney General Letitia James announced Wednesday. Intuit is accused of steering customers away from the IRS Free File program that is free to 70 percent of taxpayers while using misleading ads to promote a separate “freemium” TurboTax product that isn’t actually free to most people.
Intuit agreed to the settlement with all 50 US states and the District of Columbia. “Intuit cheated millions of low-income Americans out of free tax filing services they were entitled to,” James said in the settlement announcement. “For years, Intuit misled the most vulnerable among us to make a profit. Today, every state in the nation is holding Intuit accountable for scamming millions of taxpayers, and we’re putting millions of dollars back into the pockets of impacted Americans.”
Specifically, “Intuit will provide restitution to nearly 4.4 million 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 IRS Free File program offered through TurboTax.” Payments will be about $30 for each tax year and “impacted consumers will automatically receive notices and a check by mail,” the announcement said.
Intuit: “We admitted no wrongdoing”
The $141 million in restitution includes about $2.5 million for administrative fund costs. In a statement on the settlement, Intuit said it “agreed to pay $141 million to put this matter behind it.”
“In coming to a resolution on this matter, we admitted no wrongdoing and are pleased to be able to continue our strong partnership with governments to best serve the needs of taxpayers across the country,” said Intuit Executive VP and General Counsel Kerry McLean.
The timing of payouts to consumers is unclear. The settlement says Intuit must pay the $141 million within 30 days of the “effective date,” defined as when all parties have signed the agreement. After that, an oversight committee composed of attorneys general “shall have sole discretion concerning the administration and distribution of the Settlement Fund,” including determining who is eligible for payments and the timing and amount of payments.
Intuit is required to stop the “free, free, free” ad campaign immediately upon the settlement’s effective date. Intuit will not be allowed to publish any of the offending ads or any ads “that are substantially similar in their repetition of the word free.” Intuit also agreed to more prominent disclosures on any ad that claims a tax preparation product is free, starting no later than August 1, 2022. Some of the specific disclosure requirements expire after 10 years.
AG cites “deceptive and unfair trade practices”
The New York AG’s office said it led a multistate investigation that ” found Intuit engaged in several deceptive and unfair trade practices that limited consumers’ participation in the IRS Free File Program.” Intuit “used confusingly similar names for both its IRS Free File product and its commercial ‘freemium’ product,” ran search ads “to direct consumers who were looking for the IRS Free File service to the TurboTax ‘freemium’ product instead,” and “purposefully blocked its IRS Free File landing page from search engine results during the 2019 tax filing season,” the settlement announcement said.
Additionally, Intuit’s “Products and Pricing” page that claimed to “recommend the right tax solution” never displayed or recommended the IRS Free File program, the announcement said. James’ office said it opened the investigation in response to reporting by ProPublica.
Intuit left the IRS Free File program in July 2021. With Free File, the industry agreed to offer free tax services to people with low and moderate incomes, and in exchange, the IRS promised not to compete against the private companies. The IRS rescinded its promise not to enter the tax return software and e-file services market in late 2019 but so far hasn’t offered its own tax filing software.
