More than 2,000 lower income Delaware residents qualify for reimbursement under a settlement with tax preparation software giant Intuit.
New York Attorney General Letitia James and Delaware AG Kathy Jennings announced the multistate agreement with the owner of TurboTax, on allegations of deceiving millions of low-income Americans into paying for tax services that should have been free.
Intuit will pay $141 million in restitution to millions of consumers across the nation who were charged. The company did not admit wrongdoing. In Delaware, that works out to about $400,000 spread among more than 2,000 tax filers.
In addition, Intuit agreed to suspend TurboTax’s heavily advertised “free, free, free” ad campaign that lured customers with promises of free tax preparation services, only to force payment. All 50 states and the District of Columbia signed the agreement.
”Intuit benefited from a special agreement with the U.S. government to provide free tax services to low-income consumers nationwide, all while preventing Delawarean consumers from taking advantage of those free services,” Delaware Attorney General Jennings said. “Intuit engaged in deceptive and unfair tactics to hide access to free services and to instead promote its own profit-generating tax filing products instead. Delawareans who struggle to put food on the table shouldn’t be tricked into paying for tax preparation services they don’t need. My office will continue to protect consumers statewide and be on the lookout for businesses who seek to take advantage of them.”
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, which allows taxpayers earning roughly $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-prep companies by providing its own electronic tax preparation and filing services to American taxpayers.
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, 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.
The multistate investigation found that Intuit engaged in 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. Moreover, 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, the suit alleged.
Intuit will pay $141 million in restitution, of which roughly $2.5 million will be used for administrative fund costs.
Under the agreement, 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. 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 has also agreed to reform its business practices, including:
- 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 inform users better 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.
Intuit withdrew from the IRS Free File program in July 2021.