The company behind the TurboTax tax-filing program will pay $141 million to customers across the United States who were deceived by misleading promises of free tax-filing services, New York's attorney general announced Wednesday.
Under the terms of a settlement signed by the attorneys general of all 50 states, Mountain View, California-based Intuit will halt TurboTax's “free, free, free” ad campaign and pay restitution to nearly 4.4 million taxpayers, New York Attorney General Letitia James said.
James said her investigation into Intuit was sparked by a 2019 ProPublica report that found the company used deceptive tactics to steer low-income tax filers away from the federally supported free services for which they qualified and toward its own commercial products.
“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, and we're putting millions of dollars back into the pockets of impacted Americans,” James said in a statement. “This agreement should serve as a reminder to companies large and small that engaging in these deceptive marketing ploys is illegal.”
The Associated Press has left a message seeking comment with Intuit.
“Customers are getting upset”
Intuit has offered two free versions of TurboTax. One version was through its participation in the Internal Revenue Service's Free File Program, geared toward taxpayers earning less than about $34,000 and members of the military. Intuit withdrew from the program in July 2021. The company also offers a commercial product called “TurboTax Free Edition” that is only for taxpayers with “simple returns,” as defined by Intuit.
According to documents obtained by ProPublica, Intuit executives knew they were deceiving customers by advertising free services that were not in fact free to everyone.
“The website lists Free, Free, Free and the customers are assuming their return will be free,” an internal company PowerPoint presentation said. “Customers are getting upset.”
Under the agreement, Intuit will provide restitution to consumers who started using the commercial TurboTax Free Edition for tax years 2016 through 2018 and were told that they had to pay to file even though they were eligible for the version of TurboTax offered as part of the IRS Free File program.
Consumers are expected to receive a direct payment of approximately $30 for each year that they were deceived into paying for filing services, James said. They will automatically receive notices and checks by mail.
Few taxpayers use Free File service
Intuit has previously defended its participation in the Free File program.
“Over the past eight years alone, Intuit's free tax preparation offering has helped nearly 100 million Americans file their taxes completely free of charge. We are clear and fair with our customers and open and transparent about our advertising practices, and our participation in the Free File program was done in compliance and with the oversight of the IRS,” company spokesperson Derrick Palmer previously told CBS News.
Intuit has also said that a “government-run pre-filled tax preparation system that makes the tax collector (who is also the investigator, auditor and enforcer) the tax preparer is fraught with conflicts of interest.”
Free File, a partnership between the IRS and commercial tax-preparation companies, was intended allow about 70% of U.S. taxpayers to file their tax returns at no cost. However, less than 3% of taxpayers used Free File in the 2020 tax year, IRS figures show.
Policymakers including Sen. Elizabeth Warren have called the program a failure and accused commercial tax-prep companies, including TurboTax, of sabotaging the system. The Federal Trade Commission alsoin March, alleging that the company's ads midled consumers.
CBS News' Irina Ivanova contributed reporting.
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