UPDATES (as of 6/11/20)
LOS ANGELES--City Attorney Mike Feuer announced today that his office has filed lawsuits against Intuit Inc. (the maker of TurboTax), H&R Block, Inc. and HRB Digital LLC (collectively “H&R Block”), alleging unfair and deceptive practices in connection with their "free" online tax preparation services for low-income filers.
"Taxpayers should never be misled into needlessly spending their hard-earned money for services to which they’re entitled for free. But that’s what we allege happened here," said Feuer. "In short, we allege these companies intentionally took advantage of the low-income residents they pledged to help. The unfair and deceptive practices we allege must stop; consumers should receive restitution for fees we allege they never should have paid; and these companies should be held accountable for their alleged misconduct."
Since 2002, Intuit Inc., H&R Block, Inc., and a consortium of electronic tax filing companies have promised to provide a free version of their online tax preparation products to low-income Americans in exchange for the IRS’s commitment to "not compete with the Consortium in providing free, online tax return preparation and filing services to taxpayers." As reported in their securities filing statements, Intuit Inc. and H&R Block see the IRS’s entry into the market as a threat to their lucrative businesses. They are currently lobbying Congress to enshrine their agreement with the IRS into law.
But only a tiny fraction of eligible taxpayers actually benefit from the IRS and private industry’s "Free File" agreement. While 70 percent of taxpayers are eligible to file for free through the Free File program (currently those making up to $66,000), in the 2018 fiscal year less than 2.5% of eligible taxpayers actually did so.
The City Attorney’s lawsuits allege that this abysmal participation rate is attributable, at least in part, to Intuit Inc. and H&R Block’s deliberate efforts to hide the availability of their Free File products. For example, the lawsuits allege that both companies added code to the websites on which their "Free File" programs are located that prevented the websites from appearing in online search results—even when consumers specifically searched for them.
At the same time, the City Attorney’s lawsuits allege that Intuit Inc. and H&R Block, Inc. aggressively market inferior alternative "Free" tax preparation products on their websites, which are useless to all but those with the simplest of tax returns. For example, the complaints allege that low-income workers in the "gig economy" who are not classified as employees would not be eligible for the "free" programs Intuit Inc. and H&R Block heavily market on their main websites, but would be eligible for the free services these companies are required to provide under the IRS agreement.
The lawsuits allege that through deceptive marketing, Intuit Inc. and H&R Block use their inferior alternative "free" products to lure consumers to their websites, only to then falsely inform these consumers that they are not eligible for free services, and must instead purchase expensive products they do not need, and can scarcely afford.
The lawsuits seek injunctive relief, restitution, and civil penalties.
Deputy City Attorneys Connie Chan and Adam Teitelbaum are handling the litigation.