Intuit’s Turbo Tax dinged for ‘free’ tax filing services, will pay $141 million to customers

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Intuit has agreed to pay a $141 million settlement after a multi-state investigation led by the New York Attorney General's office found that the TurboTax owner engaged in deceptive and unfair trade practices to steer low-income Americans toward its commercial products and away from federally-supported free tax services.

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INTUINTUIT INC.424.73-6.11-1.42%

The investigation was sparked by a 2019 ProPublica report that cited documents in which Intuit executives knew they were deceiving customers by advertising free services that were not in fact free to everyone.

"The website lists Free, Free, Free and the customers are assuming their return will be free," an internal company PowerPoint presentation said. "Customers are getting upset."

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Up until July 2021, TurboTax allowed taxpayers earning roughly $34,000 and members of the military to file their taxes for free through the IRS Free filing program.  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.

Intuit also offers a free edition of TurboTax for taxpayers with "simple returns". However, the New York Attorney General's office says the aggressively marketed "freemium" product is only free for approximately one-third of U.S. taxpayers. In comparison, the IRS' Free File products are free for approximately 70% of taxpayers. 

Intuit has agreed to pay a $141 million settlement after a multi-state investigation led by the New York Attorney General’s office found that the TurboTax owner engaged in deceptive and unfair trade practices to steer low-income Americans toward its (Photographer: Michael Nagle/Bloomberg via Getty Images / Getty Images)

Intuit is accused of bidding on paid search advertisements to direct consumers looking for the IRS Free File program to TurboTax's "freemium" product instead. It is also accused of not displaying or recommending the IRS Free File program to consumers, even when they were ineligible for the "freemium" product, and purposefully blocking the IRS Free File landing page from its search results during the 2019 tax filing season. 

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Under the terms of settlement, Intuit will suspend TurboTax's "free, free, free" ad campaign and provide restitution to nearly 4.4 million consumers who used TurboTax's Free Edition for tax years 2016 through 2018. Impacted customers will automatically receive a direct payment of approximately $30 for each year that they paid for tax filing services that were advertised as free. 

All 50 states and the District of Columbia have signed onto the agreement. New York will receive more than $5.4 million for more than 176,000 impacted taxpayers. 

"For years, Intuit misled the most vulnerable among us to make a profit. Today, every state in the nation is holding Intuit accountable for scamming millions of taxpayers, and we’re putting millions of dollars back into the pockets of impacted Americans," New York Attorney General Leticia James said in a statement. "This agreement should serve as a reminder to companies large and small that engaging in these deceptive marketing ploys is illegal."

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Intuit executive vice president and general counsel Kerry McLean said in a blog post that the company 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."

"Intuit is clear and fair with its customers, including with the nearly 100 million Americans who filed their taxes free of charge with our products over the last 8 years — more than all other tax prep software companies combined," McLean added. "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."

The company reaffirmed its commitment to providing Americans with free tax preparation and filing and expects to help more than 40 million taxpayers prepare and file their tax returns free of charge over the next three years.

The Associated Press contributed to this report

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