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TurboTax to pay customers $141 million to settle deceptive ad claims

New York Attorney General Letitia James announced Wednesday morning that Intuit Inc., the parent company of TurboTax, has agreed to pay $141 million to settle claims that it deceived millions of low-income U.S. taxpayers between 2016 and 2019.

Intuit told Courthouse News Wednesday afternoon that as part of the agreement, it admitted no wrongdoing.

Since at least 2016, Intuit has marketed “freemium” TurboTax software products to eligible taxpayers – as defined by TurboTax – in all 50 states. Under this “freemium” strategy, customers are encouraged to use the company’s TurboTax Free Edition and Federal Free Edition software, which automates several steps of the tax filing process and advises consumers on how to maximize their potential returns. However, only customers who the company defined as having “simple” returns which could be filed using a 1040A or 1040EZ tax form were eligible to use these products.

All other consumers who inquired after the “freemium” software were instructed they had to upgrade to paid versions of TurboTax, which can cost up to $120, despite many of these paid services being available for free via the IRS Free File program.

“Intuit cheated millions of low-income Americans out of free tax filing services they were entitled to,” James said in a statement Wednesday. “For years, Intuit misled the most vulnerable among us to make a profit.”

The Free File program, established in 2003 between the IRS, Intuit and several other tax service providers, stated that Intuit and other providers would offer free tax preparation services to Americans with an adjusted income equal to or less than that of 70% of all U.S. consumers. Another element of the agreement stipulated that the company would only offer its free services to between 10% and 50% of these eligible low-income tax payers.

The program was meant as a compromise between the public and private sectors, ensuring that a public, free tax preparation service didn’t run private providers out of business while still allowing middle and low-income Americans to benefit from a government service. But James’ office said that, fearing participation in the Free File program could eat too far into its bottom line, Intuit purposefully confused its customers as to what it was offering for free and what was a paid product.

“Intuit chose to name its commercial freemium product TurboTax ‘Free Edition,’ even though it is only free for approximately one-third of taxpayers, while it named its Free File product ‘Freedom Edition,’ which does not indicate that it is free despite being part of a program that is free for 70% of taxpayers,” according to an assurance of voluntary compliance signed by representatives for James and Intuit.

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James said even those taxpayers who did use Intuit’s Free File product were still sometimes solicited to buy paid services, such as a $45 audit defense subscription.

The company further deceived taxpayers, James said, by removing the landing page for its Free File products from internet search engines during the peak of the 2019 tax filing season. At the same time, it bid on 13 common search engine terms such as “free file IRS” and “free file online,” so that any ads that appeared in search engine results directed customers to the deceptively named “freemium” products’ pages, rather than to the IRS Free File site or the page for Intuit’s Free File product.

“Intuit… 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,” James’ office said.

In addition to the $141 million payment, the agreement also demands Intuit stop running its “free, free, free” TurboTax ads, a series of faux-cinematic commercials in which the word “free” is uttered dozens of times in as little as 30 seconds, while the stipulations on what free products the company is actually offering are omitted or only included in small print at the end of the ad.

In agreeing to the restitution payment, Intuit will avoid further consumer protection or unfair trade practice litigation on the issue that the attorneys general of all 50 states would otherwise be cleared to pursue. James’ office said an estimated 4.4 million Americans will receive a direct $30 payment for each year they used TurboTax’s paid products between 2016 and 2018. Impacted individuals will be notified and receive their checks by mail.

Intuit wrote in a prepared statement that it was happy to put the issue behind it. The company maintained that it already adhered to “most” of the demands the states’ attorneys general made regarding its advertising practices, and said that it “expects minimal impact to its business from implementing the remaining changes going forward.”

“Intuit is pleased to have reached a resolution with the state attorneys general that will ensure the company can return our focus to providing vital services to American taxpayers today and in the future,” Kerry McLean, Intuit’s executive vice president and general counsel said. “Intuit is clear and fair with its customers… 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.”

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