$141 million settlement with Intuit Inc. after a multistate investigation reveals Intuit mislead consumers into paying for the company’s online tax prep services.
The State of New Jersey’s Attorney General announced today a $141 million settlement with the financial software company Intuit Inc. over "misleading claims" that lead over 70,000 New Jersey taxpayers into purchasing paid versions of Intuit’s TurboTax software.
According to the New Jersey Attorney General's Office, Intuit’s deceptive marketing and sales practices started in 2016. The more than 70,000 New Jersey customers who were misled will receive a total of approximately $2.15 million in direct restitution.
Overall, 4,472,788 customers across all 50 states, as well as the District of Columbia and the U.S. territories, will receive restitution paid by Intuit Inc.
“This settlement puts millions of dollars back in the pockets of New Jersey taxpayers who got scammed by Intuit’s misleading advertisements, hidden costs, and bait-and-switch tactics,” said Acting Attorney General Platkin. “Any company that engages in this kind of conduct should be held accountable...”
The state’s investigation centered on claims that Intuit used deceptive web practices to conceal the existence of a no-cost, do-it-yourself online tax program offered for low-and-middle-income users under an agreement with the IRS.
Additionally, the investigation claims that Intuit “duped consumers who were seeking the free tax help Intuit promoted in TV commercials into upgrading to costly paid products.”
“The business practices involved here were troubling on a number of levels,” said Division of Consumer Affairs Acting Director Howard Pine. “Manipulating consumers into paying for a product advertised as ‘free’ is unacceptable, as is declining to inform low-income tax filers about a no-cost option for which they would likely be eligible. The consumer restitution is certainly important here, but equally vital are the terms of the settlement designed to ensure greater transparency and accountability by Intuit going forward.”
As part of the IRS Free File Program, Intuit for many years offered a no-cost online tax preparation and filing program to low-and-middle-income taxpayers, as well as active-duty military service members.
Over the years, Intuit renamed this no-cost program multiple times, all while advertising and selling another, separate online tax return tool housed on a different Intuit web page.
This other product line, known as the TurboTax Free Edition, is only free to about one-third of all users. Most customers end up having to upgrade to paid versions of the software dubbed Premier, Deluxe, and Self-Employed.
Intuit, concerned that its IRS-contracted, no-cost program was harming its bottom line, used frequently changing and confusing product names and complex web search “deindexing” tactics to hide the no-cost program from customers.
These deceptive practices lead customers searching for the no-cost program towards Intuit’s commercial TurboTax web page, which appeared to promise free tax return filing under the “Free Edition” program name. However, in most cases, the program ended up costing consumers anywhere from $59.99 to $119.99 in upgrades.
“The states’ investigation found that Intuit aggressively marketed its commercial TurboTax Free Edition and misrepresented the eligibility criteria for it, both on its home page and in its television advertising – most notably in a series of since-removed commercials in which the only dialogue among the participants was ‘free, free, free.’” – Office of the Attorney General
Intuit also put in a series of blocks – known as “hard Stops” – in its commercial Free Edition program that stopped consumers partway through the filing process and claimed they would not be able to complete their tax filing until they purchased software upgrades.
Intuit’s failure to disclose eligibility for its IRS-hosted Free File version cost taxpayers more than $100 million. Many who were eligible for the free filing service were forced to purchase upgrades to complete the process and file their taxes.
In addition to the required $141 million in restitution, Intuit agreed to the following non-monetary terms aimed at protecting consumers going forward.
- Avoid making claims that consumers can only file their taxes online accurately if they use a TurboTax paid product.
- Disclose clearly and conspicuously in any advertising of its “free” tax preparation products that eligibility limitations may apply and that not all taxpayers will qualify for the free product.
- Refrain from airing its “free, free, free” video advertisements in any medium, or from airing ads that are “substantially similar” in their repetition of the word free.
- Take reasonable steps to design all TurboTax products to inform consumers using the software “at the earliest point it is reasonably possible” whether they will, or will not, be eligible to file for free using the product.
- Submit annual reports to a multistate Oversight Committee certifying its compliance with the terms of today’s settlement and detailing that compliance.
Funds and information will be distributed to eligible TurboTax customers through an approved settlement Fund Administrator. Customers impacted will not need to take any action to receive their payments.
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