UPDATE: (May 4, 2022 – 2:41 p.m.) Illinois Attorney General Kwame Raoul announced more than $4 million in relief for Illinois consumers who were deceived into paying for tax services that were available for free. “Intuit attracted customers to TurboTax with promises of free tax preparation services, leaving people to learn the hard way that those services were anything but free,” Raoul said. “This settlement holds Intuit accountable for intentionally deceiving taxpayers who were simply seeking an affordable option to help them navigate what can be the daunting process of filing their taxes.”
Iowa Attorney General Tom Miller has obtained nearly $1.02 million from the owner of TurboTax, Intuit Inc., for misleading more than 33,000 Iowans into paying for tax services that should have been free.
As a result of a multistate agreement, Intuit will pay $141 million in restitution to millions of consumers nationwide who were fraudulently charged, according to a Wednesday release. Intuit must also suspend TurboTax’s “free, free, free” ad campaign that enticed customers with promises of free tax preparation services, only to deceive them into paying for the services. All 50 states and the District of Columbia signed onto the agreement.
Under the agreement, Intuit will provide restitution to millions of consumers who started using TurboTax’s Free Edition for tax years 2016 through 2018 and were told that they had to pay to file, even though they were eligible to file for free using the version of TurboTax offered as part of the IRS Free File program. Affected consumers are expected to receive a direct payment of approximately $30 for each year that they were deceived into paying for filing services. They will automatically receive notices and a check by mail.
“Intuit manipulated internet search results to hide its free file services from eligible low-income consumers, and it steered them to expensive paid products through its advertising and marketing practices,” Miller said in the release.
An investigation into Intuit began after ProPublica reported that the company was using deceptive digital tactics to steer low-income consumers toward its commercial products and away from federally supported free tax services.
Intuit has offered two free versions of TurboTax. One was through its participation in the IRS Free File Program, a public-private partnership with the IRS, which allows taxpayers earning roughly $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-prep companies by providing its own electronic tax preparation and filing services to American taxpayers.
The other is a commercial product called “TurboTax Free Edition,” which is free only for taxpayers with “simple returns” as defined by Intuit.
In recent years, TurboTax has marketed this “freemium” product aggressively, including through ad campaigns where “free” is the most prominent or sometimes the only selling point. In some ads, the company repeated the word “free” dozens of times in as short as 30 seconds. However, the TurboTax “freemium” product is only free for approximately one-third of U.S. taxpayers. In contrast, the IRS Free File product was free for 70% of taxpayers.
The multistate investigation found that Intuit engaged in multiple 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. Intuit bid on paid search advertisements to direct consumers who were looking for the IRS Free File product to the TurboTax “freemium” product instead.
Intuit intentionally blocked its IRS Free File landing page from search engine results during the 2019 tax filing season, preventing eligible taxpayers from filing their taxes for free.
Moreover, 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 were ineligible for the “freemium” product.