The Federal Trade Commission sued Intuit in federal court on Monday, claiming it has deceived customers for years by marketing its TurboTax software as free and then charging most users when they file their income taxes.
Around 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 U.S. District Court for the Northern District of California, asking for an immediate halt to its “bogus” advertising as taxpayers rush to meet the April 18 deadline to file their 2021 income taxes.
The agency also issued a parallel administrative complaint on Monday. That proceeding will determine whether Intuit’s conduct violated the FTC Act, the lawsuit said.
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Much of Intuit’s advertising tells consumers they can file their income taxes for free online using TurboTax, but that’s not true for most users, including independent contractors in the gig economy who get a 1099 tax form, the FTC said.
“TurboTax is bombarding consumers with ads for ‘free’ tax filing services, and then hitting them with charges when it’s time to file,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a written statement. “We are asking a court to immediately halt this bait-and-switch, and to protect taxpayers at the peak of filing season.”
Kerry McLean, executive vice president and general counsel of Intuit, said the agency’s arguments “simply aren’t credible.”
Almost 100 million Americans have filed their taxes for free with TurboTax in the last eight years, McLean said. The firm’s most recent advertising campaign led more than 17 million taxpayers to file for free in 2021, up from 11 million in 2018 before the campaign launched, McLean added.
“Far from steering taxpayers away from free tax preparation offerings, our free advertising campaigns have led to more Americans filing their taxes for free than ever before and have been central to raising awareness of free tax prep,” McLean said in a written statement.
“While it is disappointing that the FTC chose to file this lawsuit, we look forward to presenting the facts in court and are confident in the merits of our position,” McLean added.
Filing for ‘free’
TurboTax users can file their taxes for free if they have a “simple” tax return, as defined by Intuit, according to the FTC complaint.
That definition changes from year to year; for tax-year 2021, 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 a simple return must upgrade to a paid version of the tax service, the FTC alleged.
“In truth, TurboTax is only free for some users, based on the tax forms they need,” according to the FTC lawsuit. “For many others, Intuit tells them, after they have invested time and effort gathering and inputting into TurboTax their sensitive personal and financial information to prepare their tax returns, that they cannot continue for free.”
About two-thirds of American taxpayers are ineligible to file their taxes using TurboTax’s free service, according to the FTC.
Until last year, TurboTax was a member of the IRS Free File program, a public-private partnership formed in 2002 that lets low-income Americans file their taxes for free online.
TurboTax made that service available to taxpayers with $39,000 or less in adjusted gross income, according to the FTC’s complaint. The threshold was higher for active-duty members of the military.
The legal complaint doesn’t acknowledge that TurboTax complied with IRS requirements, Intuit said.
“The fact that Intuit complied with the rules and regulations of one government agency, but is now being targeted by another, demonstrates a significant disconnect,” McLean said. “With the FTC’s action, companies will be much less willing to enter into public-private partnerships with the government that benefit consumers.”
An FTC spokesperson declined comment on the company statement. An IRS spokesperson was unable to provide comment by press time.