Settlement includes $11.4 million in restitution for approximately 370,000 Californians
OAKLAND – California Attorney General Rob Bonta today, as part of a coalition of 51 attorneys general and with the Los Angeles City Attorney and Santa Clara County Counsel, announced a $141 million settlement against Intuit, resolving allegations that the California-based company deceptively advertised its “free” online TurboTax products. Although 70% of taxpayers qualify for the Internal Revenue Service (IRS) Free File Program, operated by Intuit and others, less than 3% of taxpayers used it to file their returns in 2020. This abysmal rate is due, at least in part, to tricks and tactics used by Intuit to steer taxpayers away from the IRS Free File Program and to its paid commercial products. Today’s settlement includes $11.4 million in direct restitution for approximately 370,000 Californians and substantial injunctive terms to prevent future misconduct. The settlement resolves multistate investigations into Intuit's conduct, as well as lawsuits filed by the Los Angeles City Attorney and the Santa Clara County Counsel.
“Every year, millions of hardworking Californians put their trust in online tax filing services like TurboTax, following their step-by-step guides that promise to find taxpayers the best deals for little-to-no cost,” said Attorney General Rob Bonta. “Our investigation found that Intuit repeatedly and deliberately broke that promise. For more than a decade, Intuit used underhanded tricks and deceptive tactics to steer low-income and military taxpayers into paid products despite knowing that they qualified for free help. Today's settlement is a critical step toward accountability, providing direct restitution for millions of taxpayers and preventing Intuit from lying and misleading their customers in the future."
"We stood up for taxpayers who should never have been misled into paying for tax services they were entitled to get for free. But that's what we allege happened here," said Los Angeles City Attorney Mike Feuer. "Hundreds of thousands of customers now will get money back--and the practices we alleged at Intuit won't be able to continue. That's why we brought our case in the first place. I was especially pleased that public law offices across America joined in this effort."
“Today’s settlement holds Intuit accountable for intentionally misleading the public, and will reimburse thousands of low-income taxpayers in our community and around the country,” said Santa Clara County Counsel James R. Williams. “This is an excellent conclusion to our efforts and those of public law offices around the nation to protect taxpayers and stop corporate misconduct.”
TurboTax is the largest e-file tax preparer in the United States, with approximately 40 million taxpayers using TurboTax’s online product each year. From 2007 to 2021, Intuit offered two competing “free” products through TurboTax – one arising from a public-private partnership with the IRS and the other a commercial product – creating widespread confusion that Intuit profited from.
In 2002, Intuit agreed to provide low-income Americans and active-duty servicemembers the option to file their taxes for free. In exchange, IRS pledged not to enter the tax-preparation and e-filing market. Intuit’s “Freedom Edition”, also called the IRS Free File Program, allowed anyone who (1) had an adjusted gross income (AGI) of $36,000 or less, (2) was eligible for the Earned Income Tax Credit, or (3) was on active military duty and had an AGI of $69,000 or less to use the product to prepare and file their taxes for free.
In 2007, Intuit launched its own “free” commercial product – confusingly also named “Free Edition.” This product is free, however, only for “simple returns,” which Intuit defines as having no schedules, forms, or other “complications,” no matter how common. A large portion of taxpayers who begin the filing process using the Free Edition are informed later in the process, after spending hours filling out their information, that they need to pay $59.99, and in some cases over $200, because their returns are not considered “simple,” regardless of their income.
An investigation of these products found that Intuit steered users away from its IRS Free File product and towards its “free” commercial product using deceptive techniques and “dark patterns.” For example, taxpayers who began with Intuit’s “free” commercial product but provided TurboTax with sufficient information to establish their eligibility for the company’s IRS Free File product, were not notified that they were eligible for that truly free product. Instead, TurboTax falsely informed these users that they must upgrade for fees starting at $59.99 to “accurately complete [their] taxes.” In addition, up until Intuit ceased its participation in the IRS Free File Program in 2021, TurboTax’s “Products and Pricing” page did not list the IRS Free File product as an option. The only way to access the product was through a convoluted and unintuitive path that started with TurboTax’s support database or certain posts on TurboTax’s blog.
Today’s settlement against Intuit includes restitution for taxpayers deceived by the company and substantial injunctive terms to prevent future misconduct. Specifically, the settlement:
A copy of the settlement, which is subject to court approval, is available here.