TurboTax Tricked Customers Into Paying to File Taxes. Now Several States Are Investigating It.
Multiple state attorneys general, including Josh Stein of North Carolina, have opened investigations of TurboTax maker Intuit, following ProPublica’s reporting that the company charged millions of Americans for tax filing services they were eligible to receive for free, according to people with knowledge of the investigations.
As part of the investigations, Intuit has been subpoenaed for records. At least four states besides North Carolina are investigating, but the exact number is not clear.
The company has not specifically disclosed the state investigations to shareholders. Its recent quarterly financial report contains a broad statement that, “Beginning in May 2019, various legal proceedings were filed and certain regulatory inquiries were commenced in connection with the provision and marketing of our free online tax preparation programs.”
It continues: “We believe that the allegations contained within the legal proceedings are without merit. We intend to vigorously defend against the legal proceedings and cooperate in the investigations.”
An Intuit spokesman declined to comment on the state attorneys general investigations but told ProPublica the company is “cooperating with regulatory inquiries and confident that we have been honest with consumers.”
The state probes come as the 2020 tax season fast approaches. Intuit is also facing multiple ongoing lawsuits stemming from its treatment of free tax filing. In May, Los Angeles City Attorney Mike Feuer sued the company, alleging it deceived low-income tax filers. Several individual taxpayers brought private suits that have been consolidated in federal court in California.
Throughout the year, ProPublica reported on how Intuit routinely charged millions of Americans who were eligible to file their taxes for free, sometimes luring them in with deceptive marketing. ProPublica reported that Intuit had even hidden its free tax-filing program, offered through a partnership with the IRS, from search engines such as Google.
In a separate development this month, Intuit CEO Sasan Goodarzi told staff at a companywide meeting that the TurboTax maker has proposed a major change to the industry’s Free File agreement with the IRS, according to video of the remarks obtained by ProPublica.
Under that deal, which is governed by a memorandum of understanding, Intuit and other tax prep companies pledge to provide a free filing option to most Americans. In exchange, the IRS pledges not to follow other developed countries and create its own online filing system. Securing that noncompete pledge from the IRS was a major lobbying goal of Intuit and a key part of the company’s broad strategy to shut down any attempts to increase the government’s role in tax filing. The company sees a government tax filing option as an existential threat to TurboTax. Even without the Free File clause, the company could still work to maintain the status quo.
“There is something in the memorandum of understanding with the IRS Free File that says the IRS can’t compete with us,” Goodarzi told Intuit staff. “We told them, remove that.” He added “We do this for good; this is a philanthropic effort.”
In his remarks, Goodarzi said he had recently traveled to Washington, D.C., and he expected the IRS to announce the change earlier this month. That did not happen.
The IRS said in a statement to ProPublica this week: “The IRS is in discussions with [industry group] Free File Inc. to address concerns and recommendations for Free File that can be implemented in 2020. We are unable to comment on changes being discussed with Free File Inc. until concurrence is reached.”
The Intuit spokesman told ProPublica in a statement, “We support proposals to remove language constraining the IRS from providing its own tax preparation service and have shared our perspective with many stakeholders.” He added, “We are confident in our exceptional product and we participate in the Free File program to help give eligible taxpayers another option to file their taxes at no cost to themselves or the government.”
A spokesman for the industry group, also known as the Free File Alliance, declined to comment.