Watch CBS News

Intuit faces new lawsuit alleging it duped low-income taxpayers to pay for free tax prep

  • A lawsuit filed Friday alleges Intuit relies on a bait-and-switch scheme that dangles free tax prep for low-income customers but then charges them.
  • The lawsuit is filed by California's Santa Clara County, which said it decided to sue because of what it claims is Intuit's "egregious false advertising."
  • Even though 100 million taxpayers are eligible for free tax prep services, only about 3% of them use the service.

Most U.S. taxpayers can file their taxes for free, but a lawsuit filed Friday alleges Intuit employs a sophisticated bait-and-switch scheme to lure consumers into paying for the service anyway.

The lawsuit filed by California's Santa Clara County claims Intuit earns billions by misleading filers into thinking they are spending hours filing out its forms to file for free, only to learn they actually need to pay at the end.

"Though predatory and deceptive actions, Intuit has made hundreds of millions of dollars in unfair profits on the backs of California taxpayers," Santa Clara County Counsel James Williams said in an emailed statement. "We are suing to make sure Intuit cannot make profits by engaging in deception and lies targeting middle- and low-income families."

In 2002, the online tax-prep industry agreed to offer the Free File service to the lowest earning 70% of American taxpayers in exchange for the IRS stepping away from competing with its own free online tax prep and filing services. 

Despite offering no-cost tax-prep help, the Free File program is hardly used, according to an investigation by ProPublica. The nonprofit news organization found just 3% of 100 million eligible taxpayers use Free File. That translated into about $1 billion each year in unneeded fees paid to tax-prep firms, ProPublica reported.

"Intuit has used deceptive practices to skirt its obligations under the IRS Free-Filing Agreement for years," according to consumer rights attorney Hassan Zavareei, a partner at Tycko & Zavareei, a public interest law firm. "Instead of providing free services to low-income taxpayers, it has bilked them out of millions of dollars. At the same time, the federal government has failed to provide free services to those same vulnerable consumers based on this agreement."

Intuit: "Clear and fair"

As in the past, Intuit disputed the allegations in Friday's lawsuit. "Intuit is committed to offering free tax preparation services as demonstrated by more people filing their taxes for free with TurboTax than all other tax prep software companies combined," the company said in a statement. "When Intuit has an opportunity to respond to these allegations in court, it will be shown that Intuit has at all times been clear and fair with its customers."

Further, in a blog post intended to dispel what Intuit calls "myths" about how it operates, the company said about 50 million taxpayers were eligible to use its free filing service in 2018, and that during the past five years, 55 million Americans have used its filing services without paying anything. 

Most TurboTax users pay $100 or more, according to the latest lawsuit, which comes four months after similar accusations were made against the company in a federal court in San Jose, California, in addition to a lawsuit filed against Intuit and H&R Block by the city of Los Angeles. 

Santa Clara County made its decision to file Friday's suit based on what a spokesperson claims is Intuit's "egregious false advertising." The county "hasn't made a determination one way or another about H&R Block," the spokesperson said.

In May, H&R Block told CBS MoneyWatch that it offers four free tax filing programs. "We are pleased that consumers' use of H&R Block's Free File program grew eight percent this tax season, exceeding the Free File program growth of 6 percent," it said at the time.

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.