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FTC slams TurboTax for deceptive free filing offers

Handwritten free sign on used envelope_lance-grandahl-gI-r_Bzlcl0-unsplash1
I'm not sure what is free in this photo. A similar lack of clarity got TurboTax in trouble with the Federal Trade Commission. (Photo by Lance Grandahl on Unsplash)

With the official Monday, Jan 29, start of the 2024 tax filing season just days away, millions of taxpayers already are using tax software to prepare their returns. Since the packages can be expensive, many filers opt for what they believe are free software options.

Don't be so sure, warns the Federal Trade Commission (FTC), especially when it comes to TurboTax, the country's leading tax software.

The FTC has issued an opinion that TurboTax maker Intuit engaged in deceptive advertising practices.

The agency's accompanying final order prohibits Intuit from claiming a product or service is free unless it is free for all users. As an alternative, the FTC says Intuit must disclose detail about who qualifies for the free tax help.

History of TurboTax "free" trouble: The FTC action is the latest in the government agency's actions against the popular tax software maker.

It started in March 2022, when FTC staff issued an administrative complaint against Intuit contending the company misled consumers with allegedly deceptive advertisements pitching free tax filing that millions of consumers could not use.

At the same time, the FTC filed a federal district court complaint asking for a court order to force Intuit to immediately halt its allegedly free advertising claims. The district court case was later dismissed, and the case was tried administratively.

On Sept. 6, 2023, FTC Chief Administrative Law Judge D. Michael Chappell ruled that Intuit had "engaged in deceptive advertising in violation of Section 5 of the FTC Act" and deceived consumers when it ran ads for free tax products and services for which many consumers were ineligible.

The FTC's final order, approved by a 3-0 vote on Jan. 19 and made public Jan. 22, upholds Chappell's ruling.

Previous Free File free-not-free conduct: Before the FTC got involved, TurboTax was involved in another free filing controversy.

The software was cited in a 2019 ProPublica exposé as one of several tax software companies that had used deceptive computer code to hide the links to their Free File option from search engines.

That code change, according to the investigative journalism site's report, sent taxpayers to ostensibly free options at the companies' websites. Once there, however, taxpayers were offered add-ons that cost.

TurboTax exited IRS Free File in 2022, citing "limitations of the Free File program and conflicting demands from those outside the program." H&R Block software, which also was named in the ProPublica report, bowed out of Free File in 2021.

FTC order's effect on taxpayers: So what does the latest FTC action realistically mean to taxpayers shopping for free tax preparation software?

If they're interested in TurboTax, they'll now have more upfront information when going to the Intuit product's online offerings. And all of us should see fewer — or at least revised — television commercials touting the free filing option.

Per the FTC order, the tax software maker cannot advertise or market that any good or service is free unless it is free for all consumers or it discloses clearly and conspicuously and in close proximity to the "free" claim [emphasis mine] the percentage of taxpayers or consumers that qualify for the free product or service.

The order also requires Intuit to disclose clearly and conspicuously all the terms, conditions, and obligations that are required in order to obtain the free good or service.

If the space for the advertisement is limited — that' generally applies to ads that are not displayed on any TurboTax website, app, email, or other company owned or controlled platform — Intuit is not required to include all the terms and conditions in that smaller ad. However, it must disclose either that a majority of consumers do not qualify for free (if true) or the percentage of users that do qualify. It also must provide a link in space-constrained online ads where consumers can find details on all of the software's terms and conditions to use the product for free.

Alternatively, says the FTC, if the TurboTax good or service is not free for a majority of consumers, the company can choose to disclose that a majority of consumers do not qualify.

Finally, the FTC order prohibits Intuit from misrepresenting any material facts about its products or services such as the price and refund policies. Intuit also must make clear when consumers' ability to claim a tax credit or deduction, or to file their taxes online accurately requires they use TurboTax's paid rather than free service.

Tax software buyers beware: The FTC action underscores that age-old universal consumer warning, Buyer Beware.

Also, when it comes to tax preparation software, you might not have to be a buyer.

The IRS Free File program is still around. This year, eight companies offer free tax preparation and electronic filing to qualifying taxpayers. The basic requirement is that taxpayers, regardless of filing status, have 2023 adjusted gross income (AGI) of $79,000 or less.

Each participating Free File company gets to set its own parameters, so as already noted, be a careful shopper.

There also are a variety of other free tax help and filing options, detailed in my post on ways to file your federal taxes in 2024.

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