TurboTax Faces Lawsuit for False Advertising

Posted by Sheena Allen in TaxesMay 9, 2022(Last Updated July 29, 2022)3 min read
Key Takeaways
  • From 2016 to 2018, TurboTax falsely advertised that applicants could file their taxes for free. 
  • Although people were led to believe that they could file their taxes for free, nearly two-thirds of all applicants had to pay when filing taxes as they did not meet the criteria.
  • Since TurboTax's techniques exploited low-income families, they have been ordered to pay $141 million to 4.4 million consumers.
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Some people cannot afford or choose not to pay for premium tax filing services when tax season comes around. Therefore, they turn to free services instead. Often, they go to TurboTax, which offers free tax filing services for its customers, or at least was supposed to. However, in light of new information, Intuit, the owner of TurboTax, has been ordered to pay $141 million to its customers who used their services to file their income tax returns from 2016 to 2018.  


How TurboTax Misled Customers


At the start of tax season, TurboTax advertises that they offer free tax advice, tax preparation, and tax filing services. The two types of free filing programs offered are the IRS Free File Program and the TurboTax Free Edition.

Editorial credit: dennizn / Shutterstock.com


IRS Free File Program

The IRS Free File Program is a service offered on TurboTax's website, and the purpose of this program is to allow low-income and active military families who earn less than $38,000 and $72,000, respectively, to file their taxes at no charge. Although not everyone meets the IRS' Free File Program requirements, it is predicted that 70% of all applicants are eligible to file tax returns free of charge. 

By allegedly hiding the IRS' Free File Program, TurboTax was able to take advantage of their consumers by only offering their services, most of which were premium. Furthermore, as most applicants did not qualify for TurboTax's free tax prep program, they were forced to pay for a necessity when they could have potentially received it for free from the IRS program.


TurboTax Free Edition


TurboTax's Free Edition allows applicants to file their online tax returns at no charge; however, this free version is for simple tax returns only. (Therefore, those who received 1099s were not eligible under this program.) Consequently, those who were illegible for the free service were forced to pay for the premium services, which allowed them to file a tax return and receive a tax refund.  


Although this program sounds ideal for low-income families, it is alleged that in 2018, TurboTax purposefully hid this feature on their website and search engines during tax return season to get more people to use their other services. One of those other services is TurboTax Live Full Service, which connects a person to a tax expert who aids the applicant with filling out their application.   


Compensation for TurboTax Users


As previously stated, TurboTax has been required to pay out a total of $141 million to users of their services from 2016 to 2018. Those who were misled will now be able to receive a $30 compensation check for each year, with the max compensation being $90. 


Although the compensation amount is minimal, this amount is being disbursed to nearly 4.4 million users who used the company's services for tax prep. 


Impact on TurboTax's Future Business


Throughout the lawsuit, TurboTax maintained that they did not violate their terms of service, and whatever services were offered aligned with the advertisements they were promoting.


Editorial credit: ﹏﹏﹏﹏﹏ / Shutterstock.com


TurboTax has stated they do not believe that this lawsuit will significantly shift the number of people using their services for years to come. However, many consumers utilized their services during tax season due to the free filing program offered. Unfortunately, because the programs turned out not to always be free as many were lead to believe, and instead, some users had to pay for their taxes to be filed, there is a chance some will not return for the following year.


Another negative impact is losing the relationship and traffic from the IRS. The IRS' Free File Program was implemented on TurboTax's website as the IRS felt there was no need for them to create their own tax return feature. However, with TurboTax's exploitation of low-income families, the IRS has chosen to set up their tax returns on the IRS website so people can use it for the upcoming tax year.


Due to the IRS' implementation of their tax return feature, TurboTax will most likely encounter a decrease in consumers in the following years due to their consumer exploitation and poor customer service, resulting in lower revenue levels.



Main Image/Thumbnail - Editorial credit: Tada Images / Shutterstock.com

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