Thursday, May 5, 2022

PA Attorney General's Office Holds Intuit Accountable for Misleading Taxpayers

On Wednesday, Attorney General Josh Shapiro announced that his office has secured a settlement with Intuit Inc., makers of TurboTax. 

The settlement is part of a multistate settlement and follows a multistate investigation which found that Intuit, through aggressive and deceptive marketing, tricked consumers into paying for TurboTax products that were available for free. As part of the settlement agreement, Intuit has agreed to reform its business practices and will pay $141 million which, after administrative costs, will be returned to low-income consumers throughout the fifty states and the District of Columbia victimized by Intuit.

“Intuit aggressively marketed a TurboTax Free Edition that in reality was hardly ever free,” said AG Shapiro. “They bid on paid search ads to drive consumers to their ‘freemium product’ and purposefully blocked their IRS-partnered Free File landing page from search engine results during the peak of Tax Year 2018, leading to many Pennsylvanians who could have filed for free having to pay to file instead. Thanks to our settlement, Intuit won’t be able to engage in this kind of behavior again. Pennsylvania consumers deserve to know all of their tax filing options so they can make the best choice for themselves and their families.”

For years, Intuit offered a free version of its online tax prep products through its participation in the IRS Free File Program, a public-private partnership with the IRS that provided free tax filing products to the military and taxpayers with an annual income of around $34,000 or less. In exchange for participating in the program, the IRS agreed not to provide its own online tax prep and filing services to taxpayers. Intuit withdrew from the IRS Free File program in July 2021.

The multistate investigation found that Intuit’s advertisements and its TurboTax website misled consumers into believing that they could file their taxes for free when, in fact, they could not. Many consumers didn’t learn that they would have to pay to file until after they’d spent time and effort inputting their tax information into TurboTax. This included consumers who were eligible for Intuit’s IRS Free File product. Many of those low-income consumers were told that they could not file for free using TurboTax and that they “needed to upgrade’ when that was not true.

Intuit’s TurboTax Free Edition has only ever been free for taxpayers with “simple returns” as defined by Intuit. The “freemium” product was free only for approximately a third of US taxpayers. In contrast, the IRS Free File product was free for 70% of taxpayers.

The States’ 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.

Under the settlement, an estimated 158,000 Pennsylvanians who used TurboTax’s Free Edition in 2016 through 2018, and were told they had to pay to file even though they were eligible to file for free, will receive restitution. Consumers who qualify are expected to receive a direct payment of approximately $30 for each year they were misled 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 prep products
Enhancing disclosure in its advertising and marketing of free products
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

Pennsylvania served on the Executive Committee of the Multistate investigation, which was handled by Timothy R. Murphy, Senior Deputy Attorney General.