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TurboTax to Begin Payouts from $141 Million Settlement Over Free-Filing Deceptive Practices

S.J. Steinhardt
Published Date:
May 5, 2023


Millions of Americans will start receiving restitution payments from Intuit’s TurboTax next week as part of the $141 million settlement to which it agreed last year, The Wall Street Journal reported.

The announcement was made by New York Attorney-General Letitia James, who led the agreement on behalf of all 50 states and the District of Columbia. New York will receive more than $5.4 million for more than 176,000 New Yorkers as part of the settlement.

The payments will range from $29 to $85 to about 4.4 million taxpayers, according to the Journal.

The investigation came on the heels of a 2019 Pro Publica report that found that TurboTax essentially hid its free-filing options. The May 2021 settlement announcement stated that the affected taxpayers "were deceived by misleading promises of free tax-filing services," NPR reported at the time. It applies to those who filed returns for tax years 2016, 2017 and 2018 and were eligible to use TurboTax’s IRS free file program but were steered toward a TurboTax paid program.

“Intuit cheated millions of low-income Americans out of free tax filing services they were entitled to,” James said in the AG office  statement. “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. This agreement should serve as a reminder to companies large and small that engaging in these deceptive marketing ploys is illegal. New Yorkers can count on my office to protect their wallets from white-collar scammers.”

The IRS already allows taxpayers making less than $73,000 a year, 70 percent of taxpayers, to file their taxes for free. The agency is studying the feasibility of setting up a free e-file service for all taxpayers, something that has been opposed by tax preparations services such as Intuit and H&R Block. Both companies participated in the IRS Free File Program, a narrowly defined public-private partnership with the tax agency but have since withdrawn from it. According to the Journal, they still offer limited free filing for low-income taxpayers directly on their sites.

Seven software companies still participate in the program, but only 3.2 million of the roughly 100 million eligible households used it last year, the Free File Alliance, the coalition of software providers that partner with the IRS, told the Journal.

The IRS also offers free basic tax return preparation to qualified individuals under its Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs.

The attorney general’s multistate investigation "found that Intuit engaged in several deceptive and unfair trade practices that limited consumers’ participation in the IRS Free File Program," according to the statement from AG James' office. They included: using confusingly similar names for both its IRS Free File product and its commercial “freemium” product; bidding on paid search advertisements to direct consumers who were looking for the IRS Free File service to the TurboTax “freemium” product instead; blocking TurboTax's IRS Free File landing page from search engine results during the 2019 tax filing season; and not displaying or recommending the IRS Free File program to consumers on its products and pricing page, even when consumers were ineligible for the “freemium” product.

According to the AG's statement, Intuit has also agreed to reform its business practices, including doing the following:

● 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.

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