NEW YORK — A record multistate agreement with TurboTax owner Intuit, Inc. could put money in the pockets of millions of low-income Americans who paid for tax services that should have been free.
“For years, Intuit misled the most vulnerable among us to make a profit,"
York Attorney General Letitia James said in a statement.
Intuit will pay $141M in restitution to the taxpayers who were scammed.
Eligible taxpayers in all 50 states and the District of Columbia will receive up to $85 in checks from Intuit this month.
Intuit must also suspend TurboTax’s “free, free, free” ad campaign that "lured customers with promises of free tax preparation services, only to deceive them into paying," James said.
How it worked
Intuit offered two free versions of TurboTax. One was 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 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 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.
OAG said it uncovered 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 service 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.
- 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.
Who is eligible?
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.
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 agrees to change practices
- 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
- 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
ProPublica's report on Intuit's practices got the attention of the attorney general's office and they opened their own investigation.
Attorney General James led the multistate investigation with Tennessee, with support from the attorneys general of Florida, Illinois, New Jersey, North Carolina, Pennsylvania, Texas, and Washington.