Intuit agreed to pay $141 million in a settlement over “free” TurboTax advertisements.
Customers in every state who were duped by deceptive claims of free tax-filing services will get $141 million from the company that created TurboTax, according to New York Attorney General Letitia James. The attorney generals of all 50 states agreed to a settlement requiring Intuit Inc.’s Mountain View, California-based firm to cease advertising TurboTax as “free” when it isn’t.
The settlement comes after a nearly two-year investigation by a coalition of state attorneys general, who alleged that TurboTax used deceptive practices to trick customers into paying for tax-filing services that should have been free. The goal of her research into Intuit, according to Letitia James, was sparked by a ProPublica expose published in 2019 that revealed the firm was using deceptive tactics to persuade low-income tax filers away from federally sponsored free services for which they were qualified — and toward its own commercial solutions.
“Intuit has misled the most vulnerable among us for years to make a profit,
and today every state in the country is holding them accountable for defrauding millions of taxpayers. We’re putting millions of dollars back into the pockets of those who were scammed,” James said. “This settlement should serve as a warning to businesses that we will not hesitate to take action against those who seek to exploit New Yorkers for their own gain.” Intuit acknowledged no guilt, agreed to pay $141 million to put the matter behind it and made certain undertakings in connection with its advertising practices as part of the settlement. Intuit already follows most of these advertising rules and is confident that implementing the remaining changes will have little effect on its business going forward.”
Intuit (INTU) will also have to change the way it advertises TurboTax, and make it clear that the “free” version of the software is only available to those who qualify. The company will also have to stop using paid celebrities or endorsements in ads for TurboTax unless it’s clear that they’re being compensated. Intuit formerly offered two free versions of TurboTax, one through its membership in the IRS’s Free File Program. The other was a free edition that Intuit marketed as “free if you file your taxes with us.” In July 2021, Intuit announced it was withdrawing from the program because it could provide more services without the restrictions imposed by the program.
Intuit isn’t the only company that has come under fire for its tax-filing practices. H&R Block, which also offers a free tax-filing service, was sued by the city of New York in March 2021 for allegedly deceiving customers about the true costs of its services.
Intuit also provides a commercial product called “TurboTax Free Edition,” which is only for clients with “simple returns,” as determined by Intuit. According to ProPublica’s leak of documents, Intuit executives were aware that they were lying to consumers by advertising free services that were not free. Consumers who began using the commercial TurboTax Free Edition for tax years 2016 through 2018 and were told they had to pay to file even though they were qualified for the version of TurboTax offered as part of the IRS Free File program will be eligible for compensation.
Consumers will get a straight payment of roughly $30 for each year they were duped into paying for tax filing services, according to James. By mail, they will receive notifications and checks automatically. “We equip our customers with the control over their financial lives that includes being in command of their own taxes,” an Intuit representative told ProPublica in a statement. “When we make a mistake, we work hard to make it right.” In the meantime, the IRS has said it will provide free online tax filing for 2021 through its own website. The service is available to anyone with an annual income below $72,000.
A company spokesperson said, “Because the tax collector (who is also the investigator, auditor, and enforcer) is now the tax preparer in a government-run pre-filled tax preparation system, there are conflicts of interest.” The spokesperson also said, “There are better ways to provide free tax preparation to those who need it.” While some competitors have criticized the company for its handling of the situation, others have praised it. “Intuit has always been committed to providing the best possible experience for our customers,” said Dan Maurer, Intuit’s general manager of TurboTax. “We’re sorry for any confusion or frustration this may have caused.”
“Intuit took some important steps to remedy the situation and make things right for their customers,” said John A. Byrne, a tax attorney with the firm Caplan & Earnest LLC.