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The Federal Trade Commission sued Intuit in federal court Monday, alleging it deceived customers for years by marketing its TurboTax software as free and then charging most users when they file their income taxes.
Some 56 million people filed their taxes with TurboTax in 2021, according to an Inuit shareholder presentation in January. Those individuals filed 54 million W-2 and 40 million 1099 tax forms, the company said.
The FTC sued Intuit in the U.S. District Court for the Northern District of California, demanding an immediate cessation of its “false” advertising as taxpayers rush to meet the April 18 deadline to file their 2021 income taxes.
The agency also filed a parallel administrative complaint on Monday. That proceeding will determine whether Intuit’s conduct violates FTC law, the lawsuit states.
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Much of Intuit’s advertising tells consumers they can file their income taxes online for free with TurboTax, but that doesn’t apply to most users, including independent contractors in the gig economy, who receive a 1099 tax form, the FTC said.
“TurboTax bombards consumers with ads for ‘free’ tax reporting services, then hurls charges at them when it’s time to file them,” Samuel Levine, director of the FTC’s Consumer Protection Bureau, said in a written statement. “We are asking a court to stop this lure immediately and protect taxpayers at the height of filing season.”
Kerry McLean, Intuit’s executive vice president and general counsel, said the agency’s arguments “just don’t have credibility.”
Nearly 100 million Americans have filed their taxes with TurboTax for free over the past eight years, McLean said. The company’s latest advertising campaign resulted in more than 17 million taxpayers applying for free in 2021, up from 11 million in 2018 before the campaign launched, McLean added.
“Far from discouraging taxpayers from free tax prep offers, our free advertising campaigns have resulted in more Americans filing their taxes for free than ever before and have been central to raising awareness of free tax prep,” McLean said in one written statement.
“While it is disappointing that the FTC has decided to file this lawsuit, we look forward to presenting the facts in court and believe in the merits of our position,” added McLean.
Submit ‘free’
TurboTax users can file their taxes for free if they have a “plain” tax return, as defined by Intuit, according to the FTC complaint.
This definition changes from year to year; For the 2021 tax year, Intuit refers to a simple return as one that can be filed on a Form 1040 with limited attached schedules, like one that includes student loan interest paid, the FTC said.
Users without easy returns will have to upgrade to a paid version of the tax service, the FTC claimed.
“In truth, TurboTax is only free for some users based on the tax forms they need,” the FTC lawsuit states. “For many others, after investing the time and effort in gathering and entering their sensitive personal and financial information into TurboTax to prepare their tax returns, Intuit tells Intuit that they can’t continue for free.”
According to the FTC, about two-thirds of American taxpayers are not eligible to file their taxes using TurboTax’s free service.
Until last year, TurboTax was a member of the IRS Free File program, a public-private partnership established in 2002 that allows low-income Americans to file their taxes online for free.
According to the FTC’s complaint, TurboTax provided this service to taxpayers with adjusted gross income of $39,000 or less. For military personnel on active duty, the threshold was higher.
The legal complaint does not recognize that TurboTax complied with IRS requirements, Intuit said.
“The fact that Intuit has complied with the rules and regulations of one government agency but is now under attack by another shows a significant disparity,” McLean said. “The actions of the FTC will make companies much less willing to engage in public-private partnerships with government that benefit consumers.”
An FTC spokesman declined to comment on the company’s statement. An IRS spokesman was unable to comment as of press time.