Why TurboTax Is Being Sued By The FTC As 2021 Tax Filing Deadline Rapidly Approaches

As the deadline for the 2021 tax deadline closes in, the Federal Trade Commission has filed a lawsuit against the developer of TurboTax, Intuit (INTU), claiming that it has misled American taxpayers with its “free tax filing” advertisements for years.

According to the FTC’s lawsuit, Intuit’s allegedly used deceptive advertising practices that suggested it offered free filing services on TurboTax that were actually unavailable to consumers. Instead, the agency contended, TurboTax led taxpayers to paid tax filing products.

In its complaint, the FTC is asking a federal district court in California to order Intuit to immediately stop its deceptive advertising campaign leading up to the rapidly approaching 2021 tax deadline.

“TurboTax is bombarding consumers with ads for ‘free’ tax filing services, and then hitting them with charges when it’s time to file," Samuel Levine, the FTC’s director of the Bureau of Consumer Protection, said In a statement. "We are asking a court to immediately halt this bait-and-switch, and to protect taxpayers at the peak of filing season.”

About 56 million taxpayers filed their 2020 taxes using TurboTax in 2021, according to an Intuit January shareholder presentation, as reported by CNBC.

The IRS does offer free tax filing services for taxpayers who have an adjusted gross income of $73,000 or less through its IRS Free File Program or one of its listed partners. However, Intuit removed TurboTax from the partner program with the IRS in October, citing “limitations” to the service. The company does provide simple free tax filings on its website.

But the FTC lawsuit contends that Intuit leads consumers into thinking that they are eligible for filing a free tax return even if they have a complex filing, only later to find out they need to upgrade to a paid service to complete their taxes. The FTC said that two-thirds of tax filers could not use the free product offered by TurboTax in 2020.

Intuit claimed no wrongdoing in a statement, with Kerry McLean, executive vice president and general counsel of the company, saying, “Far from steering taxpayers away from free tax preparation offerings, our free advertising campaigns have led to more Americans filing their taxes for free than ever before and have been central to raising awareness of free tax prep.

“While it is disappointing that the FTC chose to file this lawsuit, we look forward to presenting the facts in court and are confident in the merits of our position.”

McLean added that nearly 100 million Americans have filed their taxes for free over the past eight years using TurboTax products.