A free tax service shouldn’t cost taxpayers

There’s an old adage that says repeating something over and over again doesn’t make it true. Intuit, which markets the TurboTax software, found that out the hard way when the Tennessee Attorney General and all other state Attorneys General landed on the company for deceiving consumers into paying for tax services that should have been free. The company has settled with the AGs but still faces a similar action from the FTC.

Intuit offers two free versions of TurboTax, one of which is in partnership with the IRS to allow qualifying taxpayers to file their taxes for free. The IRS agreed not to compete with Intuit and other tax-preparation companies by providing its own electronic tax preparation and filing services if they participate in its program. The IRS Free File product would be free for about 70 percent of taxpayers.

Intuit also offers a commercial product called “TurboTax Free Edition,” but it’s only free for taxpayers with returns that Intuit defines as “simple.” This “freemium” product is only free for about one-third of taxpayers. Ineligible consumers include those who get a 1099 form for work in the gig economy and those who earn farm income.

The regulators started an investigation into Intuit’s marketing practices after ProPublica reported it was using deceptive tactics to steer low-income consumers toward its commercial product and away from the federally-supported free tax service. The deception started with using similar names for its IRS and commercial products. Other Intuit tactics included:

Bidding on paid search advertisements to direct consumers looking for the IRS Free File product to the TurboTax “freemium” product instead.
Purposely blocking its IRS Free File landing page from search engine results during the 2019 tax filing season.
Including a “Products and Pricing” page on its website that it claimed would “recommend the right tax solution,” but never displaying or recommending the IRS Free File product, even when consumers were ineligible for the “freemium” product.

“Free” was the constant theme in many of the ads for TurboTax. The AGs cited one ad in which the announcer said, “That’s right, TurboTax Free is free. Free, free free free.” Ads ran during major events including the Super Bowl and NCAA Basketball Tournament.

The FTC’s Director of the Bureau of Consumer Protection said, “TurboTax is bombarding consumers with ads for ‘free’ tax filing services, and then hitting them with charges when it’s time to file. The Tennessee Attorney General said, “The last thing anybody needs at tax time is more confusion and complexity over filing.”

Intuit will pay $141 million in restitution. Approximately 111,000 consumers in Tennessee will receive payments of about $30 for each year from 2016 to 2018 in which they used a paid TurboTax product when they would have qualified to file for free through the IRS program. They’ll automatically receive notices and a check in the mail.

Intuit will also have to reform its marketing and business practices. It withdrew from the IRS Free File program in July 2021.

Several different companies still offer the IRS’ Free File Program, which can be used by consumers whose adjusted gross income is $73,000 or less. In some instances, it can also be used to file a state tax return for free. More information is available at irs.gov/freefile.

Randy Hutchinson is president & CEO Better Business Bureau of the Mid-South. This column is in partnership with Better Business Bureau of Middle Tennessee & Southern Kentucky.