Intuit owes customers $141 million after it 'cheated' them out of free tax services

TurboTax maker Intuit will pay $141 million "for deceiving millions of low-income Americans into paying for tax services that should have been free," the NY Attorney General's office wrote in a press release. It must also suspend its "free, free, free" ad campaign for TurboTax that baited customers with the promise of free tax preparation, then switched them into a paying service.

The company agreed to a settlement with all 50 US states and the District of Columbia, Ars Technica reported. The company must refund nearly 4.4 million consumers who used TurboTax's Free Edition between 2016 and 2018, then discovered they had to pay to file. Many didn't realize they had the option of of filing for free using the IRS Free File program available via a separate product.

"Intuit cheated millions of low-income Americans out of free tax filing services they were entitled to," said Attorney General Letitia James. "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."

A multistate investigation found that "Intuit engaged in several deceptive and unfair trade practices that limited consumers' participation in the IRS Free File Program," the New York AG wrote. Specifically, Intuit used similar names for both its IRS Free File product and commercial freemium TurboTax product and used search engine ads to steer customers looking for the former to the latter. It also "purposefully blocked its IRS Free File landing page from search engine results during the 2019 tax filing season," the NY AG wrote.

The AG office said that it marketed the freemium product through ad campaigns "where 'free' is the most prominent or sometimes the only selling point... however, the TurboTax 'freemium' product is only free for approximately one-third of US taxpayers."

Intuit released a statement expressing no regret and said the required ad changes would have little impact on its business. "As part of the agreement, Intuit admitted no wrongdoing, agreed to pay $141 million to put this matter behind it, and made certain commitments regarding its advertising practices," the company wrote on its blog.

Intuit dropped out of the the IRS's Free File Alliance last year, saying an exit would help it focus on "further innovating" without being encumbered by Free File program rules. Eighteen months prior, the IRS introduced new Free File rules that prohibit members from "engaging in any practice" that would prevent their free software from showing up on Google or any other search engine. They were also required to call their apps "IRS Free File program delivered by [product name]."

Senator Elizabeth Warren once called the Free File Alliance "a front for tax prep companies who use it as a gateway to sell expensive products no one would even need if we’d just made it easier for people to pay their taxes." Other countries including the UK and Japan allow return-free filing for many citizens, but Intuit, H&R Block and other companies have lobbied against such a move in the US.

The payouts, amounting to about $30 per person for each tax year, are supposed to take place within 30 days of the signing of the agreement. After that, the Attorneys General of each state will "have sole discretion concerning the administration and distribution of the Settlement Fund."