Series: The TurboTax Trap

How the Tax Prep Industry Makes You Pay

With millions of Americans scrambling to file their taxes in the next few weeks, the Federal Trade Commission asked a federal court late Monday to intervene to stop Intuit from claiming in ads that Americans can file for “free” using the company’s TurboTax software.

The FTC began investigating TurboTax in 2019 in response to ProPublica stories describing how users had been lured into using the software with promises of free filing, only to discover later they had to pay fees to finish the process.

The complaint, filed in U.S. District Court for the Northern District of California, where Intuit is based, accuses the company of engaging in deceptive marketing for years.

It points, for example, to recent TV ads in which almost every word spoken is “free,” quoting from one featuring an auctioneer who says: “And free, and free, and free, and free, and free. Now a bidder and free! Now give me another bidder and free, and a free here and a free free free a free free free.”

An image from a recent TurboTax ad, as it appears in a complaint by the Federal Trade Commission. Credit: Screenshot by ProPublica

The FTC charges that, “in truth, TurboTax is only free for some users, based on the tax forms they need. For many others, Intuit tells them, after they have invested time and effort gathering and inputting into TurboTax their sensitive personal and financial information to prepare their tax returns, that they cannot continue for free; they will need to upgrade to a paid TurboTax service to complete and file their taxes.”

In a blog post, Intuit said it will “vigorously challenge” the FTC’s complaint.

“The FTC’s arguments are simply not credible. 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,” Intuit General Counsel Kerry McLean wrote. The post added that over the past eight years, TurboTax has helped “nearly 100 million Americans file their taxes for free.”

Intuit lawyers defended the accuracy of the ads in a response filed Tuesday but also asserted that the company, in correspondence with the FTC just days ago, agreed to take down its “free” TV spots. The company said that “after meeting with FTC Chair Lina Khan and in the spirit of cooperation, Intuit informed the FTC on March 24, 2022, that it would voluntarily ‘pull down the ‘free, free, free’ TV ads for the remainder of the tax season’ in response to concerns that those advertisements were deceptive.”

TurboTax still markets some of its products as “free” on its website.

The FTC’s request, which seeks a temporary restraining order and a preliminary injunction to stop Intuit’s “free” tax prep marketing, comes in parallel with an internal FTC proceeding against the company. In that proceeding, an administrative complaint was filed against the company Monday under the federal law that prohibits unfair or deceptive business practices. If the administrative case does not settle, it will be heard before an in-house FTC judge.

While that potentially lengthy process unfolds, the FTC said it is asking the federal court to intervene to “put an immediate stop to Intuit’s deception well before this year’s April 18 tax filing deadline.”

The Information reported in January that the FTC under Khan was pushing forward with the Intuit investigation despite a recent Supreme Court ruling that trimmed the agency’s authority in such cases.

The materials filed in court Monday show the FTC has obtained a large volume of internal emails and other documents in its multiyear investigation of Intuit, though some sections of the complaint and hundreds of pages of accompanying exhibits are redacted.

Much of the material hinges on what the FTC frames as intentional confusion and misdirection around competing versions of TurboTax labeled “free.”

TurboTax previously maintained a heavily advertised Free Edition alongside a similarly named Free File product. The Free Edition routed some filers to a version of TurboTax that charged them a fee based on which tax forms they had to file.

Meanwhile, the Free File product, which was offered as part of a partnership with the IRS, did not route users to paid products and was truly free for anyone making less than an income threshold. But it was difficult to find. (In July, Intuit announced it was leaving the IRS partnership.)

According to the complaint, Intuit employees were particularly concerned that users would find the truly free version of TurboTax, and they brainstormed ways to stop that from happening.

The complaint quotes an Intuit employee saying in September 2018: “It sounds like we have the ability to block our [Free File] offering/landing page from organic search if we rename to TurboTax Free Edition. This sounds like a great solution if we learn that TurboTax Free File does start to outrank our commercial Free.”

A series of articles by ProPublica have shown that, for many years, Intuit and other providers have steered taxpayers who were eligible for free online tax prep toward paid options. That included heavily marketing products that were labeled “free” but were separate from the Free File program and often led users to paid offerings. In 2019, Intuit went so far as to add code to its Free File website that kept the option from turning up in results on Google and other search engines. (That code was later removed.) Intuit also used “dark patterns,” ProPublica reported, which are “design tricks to get users of its website to do things they don’t necessarily mean to do.”

The FTC also hired an expert, Yale School of Management marketing professor Nathan Novemsky, to conduct a survey of consumers to assess their perceptions of whether they could use TurboTax for free. The survey found that many respondents who weren’t eligible for free tax filing believed, incorrectly, that they could file their taxes for free with TurboTax. “TurboTax advertisements and the TurboTax website were identified as a significant source of taxpayers’ misimpressions about using TurboTax for free,” Novemsky wrote.