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TurboTax Violates “Free” Filing IRS Agreement Class Action

"Free" Filing TurboTax Offer on Computer Screen

How many people know that TurboTax must allow some users to file their taxes for free? The complaint for this class action alleges that Intuit, Inc., the company that makes TurboTax, has violated an agreement with the federal government because it diverts filers to paid options.

The Nationwide Class for this action is all US residents who qualified to file their taxes for free under the IRS Free-Filing Program for the 2018 tax season and satisfied TurboTax’s requirements but were still charged to file their returns. New York and Pennsylvania Subclasses have also been proposed.

TurboTax permits users to file their taxes electronically with the Internal Revenue Service. This is an advantage to filers, since it makes it easier to file and speeds up the refund process. 

In exchange for the ability to use electronic filing, the complaint says, and for the IRS’s agreement not to enter the tax preparation software marketplace, TurboTax and eleven other tax preparation providers “are required to cumulatively offer 70% of US taxpayers the option to file their taxes for free.” The complaint says that for 2018 filings, “any taxpayer whose adjusted gross income is $66,000 or less is eligible to use tax preparation software from one of these providers to prepare and file their tax returns for free.

The individual companies are permitted to set some of their own eligibility requirements for the program. TurboTax, as the industry leader, has the most stringent requirements: the person must (a) have an adjusted gross income under $34,000, (b) be eligible for the Earned Income Credit, or (c) be an active military member with an adjusted gross income of $66,000 or less.

However, the complaint says, TurboTax has “intentionally diverted” taxpayers away from its free filing programs to its paid ones. “It did this by segregating its ‘free file’ webpage from its primary website and then altering the website’s code in order to keep it hidden from search engines like Google so that it would not be easily accessible to qualified taxpayers.”

It also has a “Free Edition” that is not part of the Free File Program and permits users to do only the simplest of returns for free. Instead, the complaint says, it markets its paid filings as “Free Guaranteed,” so that some taxpayers believe they are filing for free, only to be billed at the end of the process after they’d spent hours entering information.

ProPublica, which does investigative journalism, tried two different routes to file “free” tax returns with TurboTax (one beginning with a search on “irs free file taxes”) and were billed for charges both times after the returns were filled out. It published articles on this in 2019.

All three of the plaintiffs in this class action paid TurboTax to file their taxes despite the fact that they qualified for the IRS free filing program. 

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