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Intuit, the owner of the popular tax filing program TurboTax, will pay $141 million in compensation to millions of low-income Americans who have “unfairly paid” for services that should have been free, according to a multi-state agreement announced Wednesday.
TurboTax has also agreed to reform its business practices. For example, it should suspend a “Free and Free” advertising campaign that “lured” customers with a promise to prepare free taxes but then asked them to pay, according to an announcement from New York Attorney General Letitia James.
All 50 states and the District of Columbia signed the agreement.
Intuit has admitted not committing any wrongdoing as part of the agreement and expects minimal impact on its business from implementing the changes, according to a company statement.
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“Intuit is straightforward and fair with its customers, including nearly 100 million Americans who have filed tax free with our products over the past eight years—more than all other tax software companies combined,” said Keri MacLean, CEO of Intuit, Vice President and General Counsel. .
Intuit will pay compensation to the nearly 4.4 million consumers who used the free version of TurboTax during tax years 2016 through 2018. Those customers were told they had to pay for the service despite being eligible to apply for free via the IRS Free File program offered through TurboTax, according to the announcements. .
The ad said consumers are expected to get about $30 for each year they pay for services. Consumers will automatically receive impending notifications in the mail.
“You intended to deceive millions of low-income Americans with the free tax filing services to which they are entitled,” James said in a statement. “For years, Intuit has misled the most vulnerable among us into a profit. Today, every state in the country holds Intuit to account for deceiving millions of taxpayers, and we are putting millions of dollars back into the pockets of affected Americans.”
Allegations and fixes
Until recently, Intuit offered two free versions of TurboTax. One was through the IRS Free File Program, a public-private partnership that allows low-income Americans to file their taxes for free. Intuit ended its participation in July 2021. (This version of TurboTax was available to taxpayers with income under $39,000 and active-duty military members with income under $72,000 in the 2020 tax year.)
Intuit has marketed another version, the free version of TurboTax, as “free,” but it’s only free for taxpayers with “minor” returns as defined by Intuit, according to the announcement. Users who do not have a simple return should upgrade to a paid version of the tax service; However, these individuals may qualify for the IRS’ Free File Program.
(For tax year 2021, Intuit refers to a simple return as a return that can be filed on Form 1040 with limited schedules, such as those that include student loan interest paid, according to the Federal Trade Commission.)
The service will be free for about a third of US taxpayers, while IRS Free File products are free for about 70%, according to the announcement.
State prosecutors allege that Intuit violated state consumer protection laws by engaging in fraudulent and unfair online tax preparation marketing, advertising, and sales, according to the agreement.
For example, in tax year 2018, Intuit hid the landing page for the IRS Free File program from search engines for about five months during the height of tax season, they claimed.
Furthermore, the company’s TurboTax homepage misled consumers into believing they were eligible for the “freemium” service, and the product and pricing screen did not mention the “Free File Product”, states claimed.
This past tax season, Intuit filed more than 17 million free tax files, the largest number in the industry and several times more than the IRS Free File Program, according to a company statement. It expects to help more than 40 million taxpayers prepare and file their tax returns for free over the next three years.
TurboTax has agreed to change some of its business practices, including: better informing users if they qualify to file their taxes for free, and refraining from requiring consumers to restart tax filing if they switch from a paid product to a free one, the ad said.
The Federal Trade Commission filed a lawsuit involving similar allegations to states in March. This issue is still going on.
“We believe this settlement with state and District of Columbia attorneys general also addresses issues that are at the heart of the FTC’s litigation, making this lawsuit completely unnecessary,” Intuit’s MacLean said. “However, we are fully prepared to litigate with the Federal Trade Commission to prove the merits of our case.”
A spokesperson for the Federal Trade Commission declined to comment on the allegations.