Intuit Sued For Misleading Taxpayers Away from Free Options

On January 20, plaintiff Christian Williams filed a class action complaint against defendant Intuit arising from “Intuit’s campaign to intentionally divert and deceive lower income taxpayers who are eligible to receive free tax preparation and filing services under the United States Internal Revenue Service’s Free File program to its paid TurboTax products.”  The case was filed in the Eastern District of New York, and specifically lays out charges of fraudulent inducement, unjust enrichment, deceptive practices, false advertising, and breach of contract.

Pursuant to an agreement between the tax preparation industry and the IRS, TurboTax and other companies must offer 70 percent of taxpayers the option to file taxes for free, based on their annual income. The complaint stated that TurboTax tricked customers into paying for a service that it promised the IRS and consumers it would provide for free. Further, “Intuit violated its agreement with the IRS and defrauded Plaintiff and members of the Class…by actively concealing public access to the IRS’s Free File Program and intentionally diverting qualified taxpayers away from its “free filing” program in favor of its paid product offerings.”

Williams was deceived by Intuit’s confusing and misleading marketing practices. TurboTax’s Free File Program name is TurboTax “Freedom Edition”, however, TurboTax also offers another program called, TurboTax “Free Edition”; the latter is a basic filing software, which requires most users to pay to file their tax returns. The complaint also stated that TurboTax created loopholes and fees to extract pay for filing, despite advertising a given product as free. This included a fee due to a filer’s independent contractor status. Additionally, the complaint stated that “the TurboTax Free File Program was not available through its ‘regular’ TurboTax website, and instead had a separate web address.”

The complaint stated that a small percentage of Americans file taxes for free. In the fiscal year 2018, less than “2.5 million out of the 100 million eligible taxpayers (less than 2.5%) participated in the Free File Program.”

The complaint went on to state that “Intuit marketed its paid offerings under the product name, ‘Free Guaranteed’ – so that qualified taxpayers believed they were filing their taxes pursuant to the Free File Program, only to be hit with unexpected charges after they already spent hours entering information and preparing to file.”

Williams claimed he qualified for the Free File Program and that TurboTax advertised that the software he used would let him file for free. Intuit did not communicate that he could also have his taxes prepared for free. Additionally, it was unclear that the edition of TurboTax that he used was a paid version. After he filled out his information, he was charged $223.94 to file his taxes for calendar years 2016-2018. Williams stated that he would not have used TurboTax if he knew he was going to be charged and if he was aware that he could have prepared and filed his taxes for free, he would have done so. He also would not have agreed to an arbitration clause. 

In a revision of the IRS agreement made in December, the IRS is allowed to create a competing tax-return software, and companies such as Intuit’s TurboTax are forbidden from hiding the free-filing options. Several states are investigating Intuit and other companies’ practices.  Additionally, the IRS is now changing the way tax preparation and software companies can label their Free File Program service, to improve clarity and uniformity for consumers.  Labels will read “IRS Free File program delivered by (Free File Company name or product name).” The new IRS reforms will not go into effect until 2020 tax filing season.

In this case, the plaintiff seeks actual and statutory damages, in addition to punitive damages, and equitable relief. Williams is represented by Bursor & Fisher.