Feds sue TurboTax maker, alleging it lies about “free” filing

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The U.S. government is suing Intuit, alleging that the owner of the widely used tax filing software TurboTax is lying to customers by claiming the product is free and then steering them toward paid services and products.

The Federal Trade Commission filed a complaint on Monday in the Northern District of California and asked a court for an emergency motion to halt TurboTax ads. 

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

In a court filing, the FTC said ads for TurboTax “should be put on hold to avoid victimizing consumer” and alleges the company’s marketing violates federal laws on deceptive and false advertising.

Intuit denied that it is deceiving customers, saying in a blog post that it has always followed IRS rules for free filing programs, calling the FTC’s allegations “simply not credible.”

TurboTax is the most widely used tax software in America, used by two-thirds of all tax filers, according to one estimate. Many of its ads tout its free option. In one recent spot, a dance instructor coaches an exercise class with the words: “and free, and free, and freeeeeee.” In another, a fast-talking auctioneer runs a cattle auction in which all the bids are “free.” 

In the last tax filing season, the company aired ads promoting TurboTax’s free service at least 11,000 times across nearly 500 TV stations, the FTC said in court filings. But actually filing your taxes for free using the software is nearly impossible, the FTC claims. TurboTax only makes free filing available for people with “simple” tax returns, a definition that regulators say the company routinely changes and that effectively rules out two-thirds of taxpayers, according to the agency. 

TurboTax Free Edition 2022 Commercial “Dance Workout” (Official Ad :30) by TurboTax on YouTube

“In truth, TurboTax is only free for some users, based on the tax forms they need,” FTC said in court papers. ” 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.”

As examples of what it calls deceptive marketing, the FTC noted that TurboTax uses a questionnaire on its site to funnel many users into paid software upgrades in order to file their taxes. 

Until 2021, TurboTax offered a fully free option through the Free File program, which it ran in partnership with the IRS. But the software maker continued to steer taxpayers who were eligible for Free File into paid upgrades, the FTC said. Between November 2018 and April 2019, Intuit also used code to hide its Free File software from search engines, according to the government. 

As a result, people searching for information on filing taxes for free were allegedly steered to TurboTax’s “freemium” version. (TurboTax stopped offering a Free File option in 2021.)

Intuit pushed back against the FTC’s complaint on Monday, saying it would “vigorously challenge” the suit.

“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,” Kerry McLean, Intuit’s general counsel, said in a company post.

McLean said that 17 million Americans filed for free in 2021 through TurboTax, more than any other tax software provider, and that more than 100 million people have used it over the past eight years. 

“As a longtime advocate for tax simplification and taxpayer access to free tax preparation, the facts of the case do not support the FTC’s claims,” he stated.

Intuit also said in court filings that it is removing its “free, free, free” ads from airing for the remainder of tax season. No ads would air after Friday, the company said.

Jill Schlesinger on why you should file your taxes as soon as possible 04:40

It’s not the first time that Intuit has faced lawsuits. After an investigation by nonprofit investigative news outlet ProPublica, the city of Los Angeles and Santa Clara county sued the software company in 2019, accusing it of defrauding customers. Consumers have also gone after the company in class-action suits and in private arbitration.

The Free File program was designed in the early 2000s as a public-private partnership that would allow Americans making less than $73,000 per year to file tax returns at no cost. 

However, the program has fallen far short of its goals. Just 3% of taxpayers who were eligible to file for free actually did so in 2019, a Treasury report found, while many more who could have filed free paid for the privilege. The two most popular tax software providers, including TurboTax and H&R Block, have both left the program in recent years.

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