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FTC sues Intuit for false advertising, says 'free' TurboTax isn't always free

Folks fill out online forms only to be told to upgrade to paid versions

Intuit, makers of the tax-filing software TurboTax, deceives folks with false advertising and claims its product is free to use when it isn't always free, the US Federal Trade Commission claimed in a lawsuit filed Monday.

“TurboTax is bombarding consumers with ads for ‘free’ tax filing services, and then hitting them with charges when it’s time to file,” said Samuel Levine, director of the FTC's Bureau of Consumer Protection. “We are asking a court to immediately halt this bait-and-switch, and to protect taxpayers at the peak of filing season.”

Tens of millions of US citizens and other taxpayers use TurboTax to file their annual tax returns. The program helps peeps prepare documents, and automatically estimates any tax refunds or rebates they might be eligible to receive. Intuit produces TurboTax's Free Edition software, claiming users filing simple tax returns don't have to pay anything to use it at all. 

But the FTC disagrees. The market watchdog asked the courts to issue a temporary restraining order and grant a preliminary injunction against Intuit to prevent the company from promoting TurboTax as a free service.

"In truth, TurboTax is only free for some users, based on the tax forms they need," according to the lawsuit [PDF] filed in a San Jose, California, federal district court.

"For many others, Intuit tells them, after they have invested time and effort gathering and inputting into TurboTax their sensitive personal and financial information to prepare their tax returns, that they cannot continue for free; they will need to upgrade to a paid TurboTax service to complete and file their taxes."

Intuit has changed its definition of what counts as a simple tax return over time, the FTC alleges, making fewer people eligible for the free TurboTax version. Under the 2021 tax year, only those who file tax returns using IRS Form 1040 can use TurboTax for free.

Workers reporting income via Form 1099 are not eligible to use TurboTax for free regardless of their salaries. Independent contractors, for example, such as those drivers for ride-hailing apps or food delivery services do not qualify to use the software for free. When they sign up to use TurboTax, they are often told they cannot use the Free Edition and must pay for other services like its Deluxe or Premier software.

Claims of obfuscation

Intuit does not always clearly explain that TurboTax is only free for some folks in its commercials and on its website, the FTC claims in the lawsuit. "Given this advertising, reasonable consumers may believe that the TurboTax products and services Intuit advertises as free are free for them—that they can file their taxes for free using TurboTax," according to the court documents. 

People are then led to believe they can use TurboTax at no cost to file their taxes, and spend their time filling out the forms online only to be told at the end they will need to pay for upgraded versions of the software, it is alleged. 

"Consumers who clicked on the orange button saying 'File for $0' on the [TurboTax home page] were brought to a login screen to commence an online, automated 'interview' to begin entering information to file their taxes. Consumers who were not eligible for the "freemium" version of TurboTax would not learn they were ineligible until they had already invested significant time and effort creating an account and inputting their sensitive personal and financial information into TurboTax," the lawsuit said.

People with low and middle levels of income are eligible to file their taxes for free through the IRS File Free Program, a collaboration between the IRS and financial software companies like Intuit. Intuit left the program in 2021.

The company went to great lengths to direct consumers away from filing their taxes for free when it was part of the IRS File Free Program, the FTC claims. In the 2018 tax year, Intuit allegedly hid its Free File landing page from search engines for approximately five months during the peak tax season.

The FTC accused Intuit of engaging in "unlawful acts and practices over a period of many years", including deceptive advertising and marketing of TurboTax. It asked the court to force the company to temporarily stop promoting its tax-filing software, whilst its administrative proceedings investigating the company are ongoing.

"The FTC's arguments are simply not credible," Kerry McLean, executive vice president and general counsel of Intuit, said in a statement. "Far from steering taxpayers away from free tax preparation offerings, our free advertising campaigns have led to more Americans filing their taxes for free than ever before and have been central to raising awareness of free tax prep."

The firm's most recent free advertising campaign has seen approximately 60 percent growth, from 11 million free filers in 2018 to more than 17 million free filers in 2021, she added. ®

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