Updated Intuit, the biz behind America's most popular tax-filing software, was sued this week for seemingly hiding a free version of its product from search engines.
The class-action lawsuit [PDF] from TurboTax users from across the United States was lodged in San Francisco, and joins one filed [PDF] last week by the Los Angeles City Attorney on behalf of the people of California, also against Intuit.
Both lawsuits claim that Intuit's use of HTML metatags to prevent search engines from indexing the website where the free software is available led to people being "intentionally misled and deprived of the opportunity to make an informed decision about their tax-filing service." In other words, people went straight to the paid-for system not knowing there was a free alternative.
Under an agreement with the Internal Revenue Service (IRS), tax software companies offer free-filing versions of their products for those earning under a certain amount (typically $66,000 a year). In return, the IRS agrees not to produce its own tax filing software.
But that approach came under the spotlight when a proposed law called the Taxpayer First Act sought to make what is currently a voluntary agreement permanent. That provision – inserted by the software companies – would effectively make it illegal for the IRS to produce software to interact with its own systems.
It caused an outcry, and an investigation into how the current system operates revealed the lengths to which the software companies go in order to push people toward their paid-for products.
Most notable was the fact that the two largest tax-filing software companies – California-based Intuit with TurboTax, and Missouri-based H&R Block – run separate websites that offer their free versions. Their main websites – which are heavily advertised in the run up to the tax filing deadline in April – do not offer the free version of the software despite strongly implying otherwise, neither do they link to the free-version website.
What has incensed users, however, is that fact that both Intuit and H&R Block actively hide the free-version websites from internet crawlers, adding nofollow and noindex metatags to the pages, instructing search engines to leave them out of search query results.
By contrast, the paid-for website not only encourages indexing but also includes extensive SEO efforts – including for the word "free." In some cases, users say they believed they were using the free software until they were told to pay a fee after they had inputted all their information. There was no option to transfer that information to the free version.
"TurboTax marketed its paid offerings as 'Free Guaranteed' so that qualified taxpayers believed they were filing their taxes pursuant to the free-filing program," the San Francisco-filed lawsuit noted, "only to be hit with unexpected charges after they already spent hours entering information and were getting ready to file."
One of the plaintiffs in that lawsuit, Brianna Sinohui, says she was charged $179 to file her taxes through TurboTax even though she was eligible to file for free since she earned $34,000 in 2018. Likewise, Michelle Arena who paid $86 to Intuit to file when she earned less than $22,000. Student Joseph Brougher also paid $86 to file for his income of under $6,000. Sinohui lives in California; Arena in New York; Brougher in Pennsylvania.
The lawsuit also alleges that Intuit has broken state trade practices acts and business laws in each of those states – potentially opening the company up to a US-wide class-action lawsuit.
It also claims that Intuit's customer service representatives misled consumers in a number of different ways – including pushing the "Free Edition" and "Freedom Edition" of its software, neither of which are actually free. The impact of this approach is notable: even though 70 per cent of Americans are eligible to file their taxes for free, the IRS reveals that only three per cent of them do.
"As a result of this scheme, TurboTax breached its agreement with the government, took advantage of the US public, and generated millions of dollars of ill-gotten gains from persons who least can afford it," the lawsuit argues.
There is one major roadblock in front of the lawsuit, however: under the terms of the agreement that all users agree to when using the software, they are obliged to go through a private arbitration process with the company to resolve any issues, and that same agreement includes a class-action waiver.
Similar arbitration clauses have been under fire recently and have been dropped by Big Tech companies including Facebook and Google, but Intuit is almost certain to argue that the users are contractually obliged to sort out their issue individually with the company, rather than through the courts.
One of the attorneys behind the case has called on Intuit to "disclaim" those clauses. "Given the significant number of low-income taxpayers who were affected by TurboTax's conduct, we call upon TurboTax to join tech companies like Google, Facebook and Apple and disclaim the use of forced arbitration in customer contracts affecting our country's most vulnerable citizens," said Norman Siegel of Stueve Siegel Hanson.
That agreement is unlikely to bind the City of Los Angeles however. The City argues that "taxpayers should never be misled into needlessly spending their hard-earned money for services to which they're entitled for free," and says that both Intuit and H&R Block are engaging in "unfair and deceptive practices."
In the meantime, in Washington DC, lawmakers who were all set to pass the Taxpayer First Act have responded to criticism by writing to the IRS and asking it to both suspend Intuit and H&R Block from the Free Filing Association (FFA) and carry out an investigation into all FFA members' business practices. The IRS has confirmed it has opened a probe.
According to the IRS' head lawyer, the clause that kicked off the entire saga does not permanently prevent the revenue service from offering its own software but it would have to shut down the Free Filing Association (FFA) and give all the members 12 months' notice before it could offer its own version. The Taxpayer First Act remains in limbo while the political fallout continues.
We have asked Intuit for comment and will update this story if it gets back. ®
Updated to add
"Any suggestion that Intuit does not support the IRS Free File Program is flat wrong. We stand behind our actions as being both appropriate and consistent with our values," the tax biz told The Register.
"More people have filed their taxes for absolutely free with TurboTax than all other tax prep software companies combined. We are committed to offering Americans the ability to file their taxes for free, and we’re committed to the IRS Free File program. We look forward to working with the IRS and private industry to improve the Free File program and help it continue to grow."