AG James is leading the 50 states in agreement with TurboTax owner Intuit to
Trick low-income Americans into paying for free tax services
New York will receive over $5.4 million for over 176,000 New Yorkers
NEW YORK – New York Attorney General Letitia James today announced a record multi-state settlement with TurboTax owner Intuit Inc. (Intuit) for deceiving millions of low-income Americans into their charging for tax services that should have been free. Following Attorney General James’ agreement, Intuit will pay $141 million in restitution to millions of consumers across the country who were wrongfully accused. Additionally, Intuit must suspend TurboTax’s “free, free, free” ad campaign that lured customers with promises of free tax preparation services, only to get them to pay. All 50 states and the District of Columbia have signed the agreement. New York will receive more than $5.4 million for more than 176,000 New Yorkers who have had to pay to file their federal tax returns.
“Intuit tricked millions of low-income Americans into the free tax filing services they were entitled to,” said Attorney General James. “For years, Intuit has deceived the most vulnerable among us to make a profit. Today, every state in the country holds Intuit responsible for defrauding millions of taxpayers, and we’re putting millions of dollars back into the pockets of affected Americans. This agreement should remind businesses large and small that engaging in these deceptive marketing schemes is illegal. New Yorkers can count on my office to protect their wallets from white-collar crooks.”
The Office of the Attorney General (OAG) has opened an investigation into Intuit after ProPublica reported that the company was using deceptive digital tactics to steer low-income consumers toward its commercial products and away from free federally-backed tax services. .
Intuit offered two free versions of TurboTax. One was his participation in the IRS Free File program, a public-private partnership with the Internal Revenue Service (IRS), which allows taxpayers earning around $34,000 and members of the military to file their taxes for free. In exchange for participating in the program, the IRS agreed not to compete with Intuit and other tax preparation companies by providing its own electronic tax preparation and filing services to US taxpayers.
Additionally, Intuit offers a commercial product called “TurboTax Free Edition”, which is only free to taxpayers with “simple returns” as defined by Intuit. In recent years, TurboTax has aggressively marketed this “freemium” product, including through advertising campaigns where “free” is the main or sometimes the only selling point. In some ads, the company repeated the word “free” dozens of times in as little as 30 seconds. However, the “freemium” TurboTax product is only free for about a third of US taxpayers. In contrast, IRS Free File products were free for 70% of taxpayers.
The OAG’s multistate investigation found that Intuit engaged in several deceptive and unfair business practices that limited consumer participation in the IRS Free Files program. The company has used confusingly similar names for its IRS Free File product and its commercial “freemium” product. Intuit bid on paid search ads to direct consumers searching for the IRS Free File service to the “freemium” TurboTax product. Intuit also deliberately blocked its IRS Free File homepage from search engine results during the 2019 tax filing season, preventing eligible taxpayers from filing their taxes for free. Additionally, 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 weren’t. not eligible for the “freemium” product.
Intuit will pay $141 million in restitution, of which approximately $2.5 million will be used for administrative costs.
Under the agreement, Intuit will provide compensation to nearly 4.4 million consumers who started using the free edition of TurboTax for tax years 2016 through 2018 and were told they had to pay to file their case even if they were eligible to file for free using the IRS Free File program. offered by TurboTax. Consumers are expected to receive a direct payment of approximately $30 for each year they were tricked into paying for deposit services. Affected consumers will automatically receive notices and a check in the mail.
Intuit also agreed to reform its business practices, including:
- Refrain from making false statements in promoting or offering online tax preparation products;
- Improve disclosures in its advertising and marketing of free products;
- Design its products to better inform users whether they will be able to declare their taxes for free; and
- Refrain from requiring consumers to start their tax filing over again if they switch from one of Intuit’s paid products to use a free product instead.
Intuit withdrew from the IRS Free File program in July 2021.
Attorney General James led the multi-state investigation with Tennessee, with support from attorneys general from Florida, Illinois, New Jersey, North Carolina, Pennsylvania, Texas and Washington. . All 50 states and the District of Columbia have signed on to this agreement. The States would like to thank the Federal Trade Commission for its assistance in the investigation.
This case was handled by Assistant Attorney General Joseph P. Mueller of the Consumer Frauds and Protection Bureau, as well as Assistant Attorney General Jordan Adler, Deputy Bureau Chief Clark Russell, and Legal Assistants Shirly Huang and Richard Borgia of the Bureau of Internet and Technology. . The Office of Internet and Technology is led by Office Manager Kim Berger. The Consumer Frauds and Protection Bureau is headed by Jane M. Azia. Both offices are part of the Economic Justice Division, which is headed by Chief Deputy Attorney General Chris D’Angelo and overseen by Senior Deputy Attorney General Jennifer Levy.