SANTA CLARA COUNTY, Calif. (KRON) — The maker of TurboTax, Inuit Inc., has reached a $141 million settlement after officials said the company deceptively advertised its free TurboTax products, misleading thousands of low-income taxpayers.

Santa Clara County Council James R. Willams, along with the Los Angeles City Attorney, California Attorney General, and a coalition of 30 other attorneys general announced the settlement against the largest e-file tax preparer in the U.S. last week, which includes an $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.”

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In 2002, Intuit, 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 through its “TurboTax Freedom Edition.”

Starting in the 2018 tax year, Intuit 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.” According to officials, this product has been free, however, only for tax returns with limited or no schedules, forms, or other “complications,” no matter how common.

Santa Clara County lawsuit v. Intuit

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.”  Officials said the promises of free filing were a sham for many.

Once people 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. Officials claim the upgrade had nothing to do with “accuracy,” did not reference the possibility of the actual free TurboTax Free Edition, and was instead designed to maximize Intuit’s profits.  

Additionally, up until Intuit stopped participating 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.