TurboTax Intentionally Hid Gov’t-Mandated Free Filing Service from Taxpayers, Class Action Suit Alleges [UPDATE]
Last Updated on March 23, 2021
Sinohui et al. v. Intuit Inc.
Filed: May 12, 2019 ◆§ 5:19-cv-02546
According to a class action, TurboTax intentionally hid from qualified taxpayers a feature that would allow them to file their tax returns with the IRS for free.
Case Updates
March 23, 2021 – Judge Rejects $40M Settlement as Not Good Enough for TurboTax Users
United States District Judge Charles R. Breyer has elaborated on why he opted not to preliminarily approve a $40 million settlement with TurboTax over the allegations detailed on this page, decrying the proposed deal as neither fair nor reasonable nor adequate for consumers.
In a 20-page opinion and order, Judge Breyer, who initially rejected the settlement in December 2020, denied the parties’ motion for preliminary settlement approval on the grounds that the deal would provide roughly 19 million proposed class members with “inadequate compensation” and set forth opt-out procedures that unduly burden consumers, especially the tens of thousands who have already begun to pursue claims against TurboTax in arbitration. Judge Breyer highlighted the fact that class members, who expected to be able to file their taxes for free, would likely receive an average of $28 for the roughly $100 they claim to have spent per year on Intuit’s TurboTax software.
“The proposed settlement, when considered in context, does not fall ‘within the range of possible approval,’” the judge wrote. “In these unique circumstances, ‘the amount offered in settlement’ is plainly inadequate, and many class members have justifiably had a negative ‘reaction’ to the proposed settlement’s opt out procedures, which expose a significant segment of the class to undue burdens. These considerations persuade the Court that the proposed settlement would be unfair to a portion of the class, inadequate as to the entire class, and thus not susceptible to approval under Rule 23 (e).”
The timing of the judge’s opinion comes after the parties involved in settlement talks, who have yet to reach a revised agreement, requested a delay.
A particular sticking point for Judge Breyer was that the proposed settlement’s opt-out procedure appeared on its surface to be a mechanism with which Intuit, who the judge said holds a “weak bargaining position in the arbitration proceedings,” could stall the hundreds of thousands of claims it faces before the American Arbitration Association.
“Thus, the proposed settlement’s primary effect on arbitration claimants is to stall their arbitrations until they comply with the proposed opt out procedures,” the judge said. “And if arbitration claimants both fail to opt out of the settlement and fail to file a settlement claim, they get nothing.”
May 13, 2019 – Two More Proposed Class Actions Filed Over Intuit’s Alleged Concealment of TurboTax’s Free ‘E-File’ Feature
On May 13, 2019, Intuit Inc., was hit with two more proposed class action lawsuits centered on allegations that it deliberately hid its service that allows qualified consumers to electronically file their taxes with the IRS for free. Filed in California’s Northern District, both lawsuits echo the claims detailed on this page, alleging that Intuit, among other tactics, altered the code on the TurboTax website to hide the free e-file service from search engines, as well as sprung costly upgrades on users despite confusingly positioning the software as free.
A proposed class action lawsuit out of California alleges TurboTax intentionally and deceptively hid from taxpayers its government-mandated free filing service.
“As a result of this scheme,” the complaint reads, “TurboTax breached its agreement with the government, took advantage of the U.S. public, and generated millions of dollars of ill-gotten gains from persons who least can afford it.”
The 27-page lawsuit against Intuit Inc. states that more than 35 million consumers use its flagship TurboTax software each year to file their income taxes with the IRS. Many use TurboTax in the first place because in addition to its step-by-step guidance, the software affords the ability to electronically file tax returns, the case notes. Thanks to an extended agreement between the IRS, TurboTax and 11 other tax preparation companies, who the suit points out have spent millions lobbying against the IRS creating its own free-file system, a cumulative 70 percent of taxpayers—roughly 100 million citizens whose adjusted gross income is $66,000 or less—have the option to file their taxes for free.
As the case tells it however, “less than 2.5% of eligible taxpayers” actually end up filing their taxes for free, a discrepancy the lawsuit attributes to Intuit’s “array of deceptive practices” aimed to prevent lower-income taxpayers from filing for free.
TurboTax, the case alleges, violated its agreement with the federal government by “intentionally diverting qualified taxpayers” away from its free filing program and toward its paid product offerings. The defendant accomplished this, the suit says, citing an extensive Pro Publica report, by segregating its “free file” webpage from its primary website. Further, Intuit allegedly altered the source code on TurboTax.com in order to hide the free filing section from search engines and to make the page not as easily accessible. In fact, the free filing version of TurboTax’s software—the “Freedom Edition”—is not available through the company’s primary website, the case says.
TurboTax went so far as to market its paid offerings as “Free Guaranteed,” the case continues, which led qualified taxpayers to believe they were filing with the IRS for free only to be surprised with charges after they’d already spent hours entering their tax information.
The lawsuit looks to represent a proposed nationwide class, as well as New York- and Pennsylvania-only classes, of consumers who qualified to file their taxes for free pursuant to the IRS Free-Filing Program for the 2018 tax season and satisfied TurboTax’s eligibility requirements but were charged money by TurboTax to file their tax returns.
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