Intuit Inc, the owner of TurboTax, will be cutting a big, fat check — $141 million — to pay out to millions of consumers who were duped by the company’s promises of “free” tax return services.
The settlement, which was signed by the attorneys general of all 50 states as well as the District of Columbia, also requires the company to suspend TurboTax’s “free, free, free” ad campaign that lured consumers with promises of free tax preparation services, only to deceive them into paying for services, Attorney General Maura Healey’s Office announced Wednesday.
Under the terms of the settlement, Massachusetts will receive $2.3 million for tens of thousands of eligible consumers who were allegedly deceived into paying to file their federal tax return, officials said.
“TurboTax’s misleading tactics caused millions of vulnerable consumers across the country to pay for tax preparation services that should have been free,” said Healey. “This nationwide settlement will bring money back to Massachusetts consumers who were harmed and prevent this deception from happening again.”
Authorities began investigating Intuit began after receiving reports that the company was using digital tactics to steer low-income consumers toward its products and away from federally-supported free tax services, Healey’s office said.
Intuit previously offered two free versions of TurboTax.
One free version was offered through Intuit’s participation in the IRS Free File Program, a public-private partnership with the Internal Revenue Service (IRS), which allows taxpayers earning roughly $34,000 and members of the military to file their taxes for free, officials said.
Intuit also offered a commercial product called “TurboTax Free Edition,” which is only free for taxpayers with “simple returns” as defined by Intuit.
According to Healey’s office, TurboTax marketed this “freemium” product aggressively, including through ad campaigns where “free” is the most prominent or sometimes the only selling point. In some ads, the company repeated the word “free” dozens of times in as short as 30 seconds. However, the TurboTax “freemium” product is only free for approximately one-third of US taxpayers. In contrast, the TurboTax Free File product was free for 70 percent of taxpayers, officials said.
“The multistate investigation found that Intuit limited consumers’ participation in the IRS Free File Program, including by using confusingly similar names for both its IRS Free File product and its commercial “freemium” product,” a new release from Healey’s office said. “Intuit bid on paid search advertisements to direct consumers who were looking for the IRS Free File product to the TurboTax “freemium” product instead. Intuit also purposefully blocked its IRS Free File landing page from search engine results during the 2019 tax filing season, effectively shutting out eligible taxpayers from filing their taxes for free. TurboTax’s website also included a “Products and Pricing” page that stated it would “recommend the right tax solution,” but never displayed or recommended the IRS Free File program, even when consumers were ineligible for the “freemium” product.”
Intuit withdrew from the IRS Free File program in July 2021.
Under the terms of the settlement, Intuit will pay $141 million in restitution to millions of consumers who started using TurboTax’s Free Edition for tax years 2016 through 2018 and were told that they had to pay to file even though they were eligible to file for free using the version of TurboTax offered as part of the IRS Free File program. Impacted consumers are expected to receive a direct payment in the mail of approximately $30 for each year that they were deceived into paying for filing services, officials said.
Intuit has also agreed to reform its business practices, including:
Refraining from making misrepresentations in connection with promoting or offering any online tax preparation products.
Enhancing disclosures in its advertising and marketing of free products.
Designing its products to better inform users whether they will be eligible to file their taxes for free.
Refraining from requiring consumers to start their tax filing over if they exit one of Intuit’s paid products to use a free product instead.
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