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The FTC filed a complaint with both an administrative and federal lawsuit against the tax software company Intuit on Monday, both involving alleged deceptive marketing practices.
TurboTax has a free version. The FTC claims this is “bait and switch” because most users are charged when they file their tax returns.
The company says the arguments are “simply not credible.” TurboTax was part of the IRS Free File program until last year. The FTC sued Intuit on Monday and claims that it has deceived customers by marketing TurboTax as free and charging most people when they file their taxes. Around 56 million people filed their taxes with TurboTax in 2021, according to an Intuit shareholder presentation in January. Those individuals filed 54 million W-2 and 40 million 1099 tax forms, the company said.
The Federal Trade Commission sued Fast Intuit Inc. in U.S. District Court for the Northern District of California, asking for an immediate halt to its “false advertising” as taxpayers rush to meet the April 18 deadline to file their overdue tax returns.
The agency also issued a parallel administrative complaint on Monday. That proceeding will determine whether Intuit’s conduct violated the FTC Act, the lawsuit said. Intuit is deceiving customers by advertising that they can file their taxes for free online using TurboTax, when in reality, this service isn’t available to most users. The FTC has taken legal action and requested that the court stop this misleading advertising immediately. This is especially important as tax season peaks.
“TurboTax is bombarding consumers with ads for ‘free’ tax filing services, and then hitting them with charges when it’s time to file,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a written statement.
Kerry McLean, executive vice president and general counsel of Intuit, said the agency’s arguments “aren’t credible.” Almost 100 million Americans have filed their taxes for free with TurboTax in the last eight years, McLean said. The firm’s most recent advertising campaign led more than 17 million taxpayers to file for free in 2021, up from 11 million in 2018 before the campaign launched, McLean added. “This lawsuit is unfortunate, but we are confident in the merits of our case,” said McLean in a written statement. “Our free advertising campaigns have raised awareness of free tax prep services and led more Americans to file their taxes for free.”
Filing for ‘free’
TurboTax users can file their taxes for free if they have a “simple” tax return, as defined by Intuit, according to the FTC complaint. The definition of a “simple return” changes from year to year; for tax-year 2021, Intuit refers to a simple return as one that can be filed on a Form 1040 with limited attached schedules. If users don’t have a simple return, they must upgrade to a paid version of the tax service, which is what the FTC alleges. “In truth, TurboTax is only free for some users, based on the tax forms they need,” according to the FTC lawsuit. “For many others, Intuit tells them, after they have invested time and effort gathering and inputting into TurboTax their sensitive personal and financial information to prepare their tax returns, that they cannot continue for free.” About two-thirds of American taxpayers are ineligible to file their taxes using TurboTax’s free service, according to the FTC. TurboTax was a member of IRS’ Free File program in 2002 until last year. This is part of the IRS’ mission to provide low-income Americans with access to tax filings without undue effort or cost.
TurboTax made that service available to taxpayers with $39,000 or less in adjusted gross income according to the FTC’s complaint. The threshold was higher for active-duty members of the military. Intuit insists that TurboTax adheres to IRS requirements and points out that the legal complaint is inaccurate in this regard. “The fact that Intuit complied with the rules and regulations of one government agency, but is now being targeted by another, demonstrates a significant disconnect,” McLean said. “The FTC’s ruling may make it harder for companies to enter into public-private partnerships with the government and benefit consumers.” A spokesperson for the FTC declined to comment for this story in time for publication. An IRS spokesperson was unable to provide comment by press time.