The Federal Trade Commission (FTC) sued TurboTax maker Intuit Inc. (INTU) on Monday, March 29, alleging that the popular tax filing software deceives customers by claiming the product is free but directs most users to paid products and services. According to a recent Intuit shareholder presentation, 56 million people filed their taxes with TurboTax in 2021.
- The FTC has sued TurboTax maker Intuit, alleging its software deceives customers by claiming the product is free but then directs most users to paid products and services.
- The FTC has requested an immediate halt of TurboTax advertising ahead of the April 18 deadline for taxpayers to file their 2021 income taxes.
- Intuit has rejected the FTC's claims, saying it continually looks to increase the number of people who can use its free tax preparation software.
- To be eligible to use TurboTax's free tax preparation products, users must file a "simple" tax return, which Intuit defines as one lodged on a Form 1040 with limited attached schedules.
The FTC's complaint filed in U.S. District Court for the Northern District of California requested an immediate halt of TurboTax advertising ahead of the April 18 deadline for taxpayers to file their 2021 income taxes.
"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 statement. "We are asking a court to immediately halt this bait-and-switch and to protect taxpayers at the peak of filing season," he added.
Bait and switch is a morally suspect sales tactic that lures customers in with specific claims about the quality or low prices on items that turn out to be unavailable in order to upsell them on a similar, pricier item.
The agency pointed to the ineligibility of gig economy workers and those who earn agricultural income to use TurboTax's free tax preparation software. It also highlighted a TurboTax questionnaire that directed many users to paid software to file their taxes. In addition, the FTC filed a separate complaint to determine if the TurboTax marketing breached deceptive advertising laws.
Intuit Denies That Its Tax Software Deceives Customers
Intuit rejected the FTC's claims that its TurboTax advertising had breached federal deceptive and false advertising laws, calling the agency's claims "simply uncreditable" in a statement posted to the Mountain View, California-based software company's blog.
"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," said Kerry McLean, Intuit's general counsel.
Intuit—which also owns small business and budgeting software brands QuickBooks, Mint, and Mailchimp—says it continually looks to increase the number of people who can use its free tax preparation software. The company noted that it was a founding member of the Internal Revenue Service (IRS) Free File program that lets lower-income Americans file their taxes online for free. However, Intuit left that initiative last year.
Free 'Simple' Tax Returns
To be eligible to use TurboTax's free tax preparation products, users must file a "simple" tax return, which Intuit defines as one lodged on a Form 1040 with limited attached schedules, such as a filing that includes student-loan interest paid. The FTC argues that about two-thirds of taxpayers are ineligible to file their taxes under this limited definition, with many not realizing it until after investing considerable time entering their personal information and financial details into the software.
Form 1040 is the standard Internal Revenue Service (IRS) form that individual taxpayers use to file their annual income tax returns. The form contains sections that require taxpayers to disclose their taxable income for the year to determine whether additional taxes are owed or whether the filer will receive a tax refund.
"In truth, TurboTax is only free for some users, based on the tax forms they need," the FTC lawsuit stated. "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."
Court documents filed by the FTC claim that several of Intuit's TurboTax commercials repeat the word "free" 40 times within a 30-second window, only briefly displaying the disclaimer that its free preparation software applies to simple returns only.