Santa Clara County Counsel Announces $141 Million Settlement Against TurboTax Maker Intuit for Deceptive Marketing
SANTA CLARA COUNTY, CALIF. – Santa Clara County Counsel James R. Williams, along with the Los Angeles City Attorney, California Attorney General, and a coalition of 30 other attorneys general, has reached a $141 million settlement with Intuit Inc., the maker of the electronic tax preparation software TurboTax. The settlement resolves allegations that Intuit deceptively advertised its “free” TurboTax products and misled low-income taxpayers regarding the existence of the free tax preparation product it promised the public it would provide. It includes $11.4 million in direct restitution for approximately 370,000 Californians and substantial injunctive terms to prevent future misconduct.
“Today’s settlement holds Intuit accountable for intentionally misleading the public, and will reimburse thousands of low-income taxpayers in our community and around the country,” said Santa Clara County Counsel James R. Williams. “This is an excellent conclusion to our efforts and those of public law offices around the nation to protect taxpayers and stop corporate misconduct.”
“Every year, millions of hardworking Californians put their trust in online tax filing services like TurboTax, following their step-by-step guides that promise to find taxpayers the best deals for little-to-no cost,” said Attorney General Rob Bonta. “Our investigation found that Intuit repeatedly and deliberately broke that promise. For more than a decade, Intuit used underhanded tricks and deceptive tactics to steer low-income and military taxpayers into paid products despite knowing that they qualified for free help. Today's settlement is a critical step toward accountability, providing direct restitution for millions of taxpayers and preventing Intuit from lying and misleading their customers in the future."
“We stood up for taxpayers who should never have been misled into paying for tax services they were entitled to get for free. But that’s what we allege happened here,” said Los Angeles City Attorney Mike Feuer. “Hundreds of thousands of customers now will get money back--and the practices we alleged at Intuit won’t be able to continue. That’s why we brought our case in the first place. I was especially pleased that public law offices across America joined in this effort.”
Intuit is the largest e-file tax preparer in the United States. In 2002, it, along with other electronic tax preparation filers, entered IRS Free File. Under that program, Intuit agreed to provide low-income Americans the option to file their taxes for free in exchange for the IRS’s pledge not to enter the tax-preparation market. Its “TurboTax Freedom Edition” was how it offered that free tax filing, and in tax year 2018 allowed anyone who (1) had an adjusted gross income (AGI) of $34,000 or less, (2) was eligible for the Earned Income Tax Credit, or (3) was on active military duty and had an AGI of $66,000 or less to use the product to prepare and file their taxes for free.
In 2007, Intuit launched its own “free” commercial product – confusingly named “TurboTax Free Edition.” This product has been free, however, only for tax returns with limited or no schedules, forms, or other “complications,” no matter how common.
The County’s lawsuit, filed in September 2019, alleges that Intuit intentionally and deceptively steered taxpayers to the TurboTax Free Edition and away from the TurboTax Freedom Edition, promising taxpayers they could file their taxes using the TurboTax Free Edition “for 0” or “free, free free.” But the promises of free filing were a sham for many.
Once they spent hours entering their tax information, Intuit falsely told them they needed to pay $100 or more to upgrade to another version of TurboTax to “accurately file” their taxes. The upgrade had nothing to do with “accuracy,” did not reference the possibility of the actually free TurboTax Free Edition, and was instead designed to maximize Intuit’s profits. Moreover, up until Intuit ceased its participation in IRS Free File in 2021, TurboTax’s website page did not list the TurboTax Freedom Edition as an option or recommend it to eligible consumers who could have used it to file for free.
In addition to paying $141 million in restitution to deceived taxpayers, Intuit has agreed to injunctive terms, which:
• Bar Intuit from lying to taxpayers about the necessity of upgrading from its free product;
• Require Intuit to “clearly and conspicuously” disclose in advertisements any limitations of its free product;
• Require Intuit to disclose to taxpayers at the earliest possible point in using a free product that they will not qualify for that product; and
• Bar Intuit from requiring users to re-enter data when they upgrade from a free product and then return to the free product.
The County’s complaint and prior press release regarding this matter are available on the County Counsel’s website.
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About the Santa Clara County Counsel’s Office
The Office of the County Counsel serves as legal counsel to the County, its Board of Supervisors and elected officials, every County department and agency, and the County’s boards and commissions. With a staff of over 230, the Office is also responsible for all civil litigation involving the County and its officers. Through its Social Justice and Impact Litigation Section, the Office litigates high-impact cases, drafts innovative local ordinances, and develops policies and programs to advance social and economic justice. The Section also defends the County in select cases with the potential to significantly affect the County’s ability to provide critical safety net services to vulnerable residents. The Section is part of a growing movement to use the power and unique perspective of local government to better serve the community and to drive long-lasting change at the local, state, and national levels.
About the County of Santa Clara, California
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Media Contact: Kimberly Forrester, (408) 299-5902