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Federal Tax

FTC Bars Intuit From Distorting Eligibility for TurboTax Free Edition

Tim Shaw  

· 6 minute read

Tim Shaw  

· 6 minute read

TurboTax Owner Intuit was prohibited by the Federal Trade Commission from marketing the “free” version of the tax preparation software unless it is no charge to all customers and not just the one-third of eligible customers who only file “simple returns.”

An opinion and final order issued January 22 following a 3-0 decision upheld the September 8, 2023, initial opinion of Chief Administrative Law Judge D. Michael Chappell, who found that Intuit engaged in deceptive advertising practices when it misrepresented its free tax products and services. The FTC first filed a complaint against the company in March 2022 with the US District Court for the Northern District of California. In May that year, Inuit paid out $141 million in settlement payments to 4.4 million customers across all 50 states and Washington, DC.

Reuters reported earlier in the week that the company will immediately appeal the order and that it has remained “clear, fair, and transparent with its customers.”

Throughout its legal battles, Intuit has contended its free version of TurboTax is in fact free, but the crux of the issue is how ad campaigns online and on television would lead customers to believe that anyone can file federal and state taxes at no cost. In reality, only customers with so-called simple returns, as defined by the company, may do so.

As illustrated in Monday’s order, the definition of a simple return can and has changed year-to-year. For example, from tax years 2016-2017, a simple return meant one that can be filed using a Form 1040EZ. After the IRS discontinued that form, the definition changed to a return that can be filed on a regular Form 1040 but with limited attached schedules.

“Most taxpayers do not have ‘simple tax returns,’ as defined by Intuit, and thus do not qualify to file for free using Free Edition,” read the opinion, which found that roughly two-thirds of customers are ineligible. “Currently, consumers not eligible for TurboTax Free Edition include those with mortgage and property deductions, charitable donations over $300, itemized deductions, unemployment income, investment income, rental property income, education expenses (excluding student loan interest), and refinancing deductions.” Gig workers like rideshare and delivery drivers who file Forms 1099 are also left out.

Under the order, future TurboTax Free Edition ads must “clearly and conspicuously” claim the percentage of customers that qualify. If the majority of customers do not qualify, the ad must disclose so in the proximity of the “free” claim.

“The order also prohibits Intuit from misrepresenting any material facts about its products or services such as the price, refund policies or consumers’ ability to claim a tax credit or deduction or to file their taxes online accurately without using TurboTax’s paid service,” read a FTC press release.

The order comes a week before the start of tax season, during which the IRS is launching a pilot program allowing certain qualifying taxpayers to complete and file their tax returns directly with the IRS. Tax prep industry titans like Intuit have lobbied against the IRS having its own in-house filing tool. The TurboTax provider left the IRS Free Filing Alliance, where the IRS partners with third-party tax software companies, in 2021.

An opinion and final order issued January 22 following a 3-0 decision upheld the September 8, 2023, initial opinion of Chief Administrative Law Judge D. Michael Chappell, who found that Intuit engaged in deceptive advertising practices when it misrepresented its free tax products and services. The FTC first filed a complaint against the company in March 2022 with the US District Court for the Northern District of California. In May that year, Inuit paid out $141 million in settlement payments to 4.4 million customers across all 50 states and Washington, DC.

Reuters reported earlier in the week that the company will immediately appeal the order and that it has remained “clear, fair, and transparent with its customers.”

Throughout its legal battles, Intuit has contended its free version of TurboTax is in fact free, but the crux of the issue is how ad campaigns online and on television would lead customers to believe that anyone can file federal and state taxes at no cost. In reality, only customers with so-called simple returns, as defined by the company, may do so.

As illustrated in Monday’s order, the definition of a simple return can and has changed year-to-year. For example, from tax years 2016-2017, a simple return meant one that can be filed using a Form 1040EZ. After the IRS discontinued that form, the definition changed to a return that can be filed on a regular Form 1040 but with limited attached schedules.

“Most taxpayers do not have ‘simple tax returns,’ as defined by Intuit, and thus do not qualify to file for free using Free Edition,” read the opinion, which found that roughly two-thirds of customers are ineligible. “Currently, consumers not eligible for TurboTax Free Edition include those with mortgage and property deductions, charitable donations over $300, itemized deductions, unemployment income, investment income, rental property income, education expenses (excluding student loan interest), and refinancing deductions.” Gig workers like rideshare and delivery drivers who file Forms 1099 are also left out.

Under the order, future TurboTax Free Edition ads must “clearly and conspicuously” claim the percentage of customers that qualify. If the majority of customers do not qualify, the ad must disclose so in the proximity of the “free” claim.

“The order also prohibits Intuit from misrepresenting any material facts about its products or services such as the price, refund policies or consumers’ ability to claim a tax credit or deduction or to file their taxes online accurately without using TurboTax’s paid service,” read a FTC press release.

The order comes a week before the start of tax season, during which the IRS is launching a pilot program allowing certain qualifying taxpayers to complete and file their tax returns directly with the IRS. Tax prep industry titans like Intuit have lobbied against the IRS having its own in-house filing tool. The TurboTax provider left the IRS Free Filing Alliance, where the IRS partners with third-party tax software companies, in 2021.

 

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