Intuit settles nationwide tax preparation case.
Intuit, the creator of TurboTax and responsible for TurboTax marketing, is set to pay out $141 million to millions of U.S. citizens after reaching a settlement with all 50 states and the District of Columbia. More specifically, the tax software company will issue $90 to each of the more than 4 million people who paid for TurboTax software even though they “were eligible to receive it for free,” according to court documents.
A legal case ensued after a three-year probe by state attorneys general (AGs) headed by Letitia James of New York. The AGs discovered that Intuit had “systematically tricked millions of people into paying for tax preparation,” court records indicate. The deal covers anyone who paid to file their taxes using TurboTax from 2016 to 2018, even though they were found to be eligible for a “no-fee version of the software offered through the Free File program,” launched, in part, by the Internal Revenue Service (IRS) in 2003.
To be eligible to use Free File, tax preparers needed to make an income lower than $34,000 in 2018. Those eligible for the federal Earned Income Tax Credit, as well as active-duty military service members with low incomes, were also eligible. For each year an eligible person paid Intuit, the software company will send them $30. It must also improve its disclosure practices and “cease marketing TurboTax under its years-long ‘free free free’ ad campaign,” according to settlement records.
“For years, Intuit misled the most vulnerable among us to make a profit,” James said. “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.”
The company did not have to admit to any wrongdoing. Instead, Intuit said it “agreed to pay $141 million to put this matter behind” it. The company added, it “already adheres to most of these advertising practices and expects minimal impact to its business from implementing the remaining changes going forward.”
ProPublica previously reported that Intuit’s deceptive marketing practices go back more than a decade. However, those practices that took place before 2016 cannot be pursued in litigation against the company because of the statute of limitations. Intuit has gained roughly $3 billion in net income over the 2016 to 2018 time period due to TurboTax.
The software provider is still facing legal battles concerning its deceptive marketing practices (particularly marketing TurboTax as free). The Federal Trade Commission (FTC) is independently pursuing legal action after filing a lawsuit March 2022. The federal agency has claimed, “the company’s ubiquitous advertisements touting their supposedly ‘free’ products – some of which have consisted almost entirely of the word ‘free’ spoken repeatedly – mislead consumers into believing that they can file their taxes for free with TurboTax.” It has asked the court to “issue an emergency order forcing Intuit to stop its marketing of its products as free.” More than 150,000 individuals have also filed arbitration claims.
Of the FTC case in particular, Intuit said, “this settlement with the state attorneys general and the District of Columbia also addresses the issues at the core of the FTC litigation, making that lawsuit entirely unnecessary. Nevertheless, we are fully prepared to litigate with the FTC to prove the merits of our case.”