FTC sues Intuit for TurboTax's misleading free tax-filing campaign

The Federal Trade Commission filed a lawsuit against TurboTax creator Intuit (INTU) this week, claiming its deceptive “free tax filing” ads are misleading American taxpayers.

The consumer protection agency alleged that Intuit’s advertising practices purposely guided consumers to seek out free filing services on TurboTax that weren’t actually available to them. Instead, they were steered to the company’s paid products.

With tax day barely a month away, the FTC has also filed a federal district court complaint, asking the court to order Intuit to immediately halt its deceptive advertising campaign.

“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, the FTC’s director of the 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.”

The building of the Federal Trade Commission in downtown Washington DC.
The building of the Federal Trade Commission in downtown Washington DC.

Many taxpayers would be able to file their federal tax return at no cost. According to the IRS, taxpayers whose adjusted gross income is $73,000 or less are eligible for a free federal tax return. Qualifying tax filers can file their returns with the IRS Free File Program or one of its partners.

Intuit pulled TurboTax from the IRS Free File Program in October, claiming it had "limitations," but still provides free filing outside the program for simple returns on its website.

The FTC lawsuit claims that taxpayers with complex returns engage TurboTax, thinking they are eligible to file for free, but later find out they need to upgrade to a paid service to complete and file their taxes. According to the FTC, approximately two-thirds of tax filers could not use TurboTax’s free product in 2020.

Intuit issued a statement claiming no wrongdoing.

TurboTax products sit on display at Costco in Foster City, California.  (Photo by Kimberly White/Getty Images for TurboTax)
TurboTax products sit on display at Costco in Foster City, California. (Photo by Kimberly White/Getty Images for TurboTax)

“The FTC’s arguments are simply not credible,” Kerry McLean, executive vice president and general counsel of Intuit, said in a statement. “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 TurboTax products have helped nearly 100 million Americans file their taxes for free over the past eight years. Additionally, the recent free advertising campaign increased the use of its free offerings from 11 million free filers in 2018 – before the launch of the campaign – to over 17 million free filers last year.

The suit also comes after ProPublica first reported in 2019 how the TurboTax landing page hid its free file option from users and Google search engines. Intuit later changed the code so the option was no longer hidden, according to an update from the nonprofit newsroom.

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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