Next Monday is Tax Day. If last season is typical, about 50 million returns will be done with TurboTax software created by more than 2,500 employees in San Diego.
But many Americans using TurboTax are paying an extra price after expecting to file at no cost, the government alleges, calling the parent firm’s “free-filing” campaign a sham. (Some ads even used the word “free” 40 times in 30 seconds.)
The Federal Trade Commission is urging a federal court to immediately order Intuit, maker of TurboTax, to quit advertising its free version.
“Time is of the essence,” FTC lawyers said Friday, 11 days after filing suit in San Francisco. “Millions of consumers will be selecting a tax preparation service in the coming days and will inevitably be exposed to Intuit’s deceptive advertising through a variety of media, including social media, mobile ads, search ads and websites, including the official TurboTax website.”
So worrisome is the “free” campaign that the FTC wants U.S. District Judge Charles R. Breyer to make a ruling without waiting to hold a hearing set for April 21. (Breyer, 80, is the younger brother of retiring U.S. Supreme Court Justice Stephen Breyer.)
The FTC — if it can’t get a temporary restraining order, or TRO — wants Breyer to move up the hearing to the “earliest possible date.”
“The currently scheduled hearing on the FTC’s TRO Motion is several days after Tax Day (April 18) and a significant amount of irreparable harm to consumers and honest competitors could be prevented by entering a TRO before then,” the FTC says.
On Monday, in its latest response, Mountain View-based Intuit accused the FTC of “significantly” amping up its rhetoric to suggest an emergency.
“Yet despite filing 10 new exhibits totaling 141 pages, the FTC still has identified only 23 consumer complaints related to Intuit’s advertising, a tiny fraction of Intuit’s overall customer base,” says Intuit’s high-powered legal team, including one-time U.S. Solicitor General Seth Waxman.
It continued: “The FTC can only speculate that Intuit has consistently received high customer-satisfaction ratings and retention rates for reasons other than actual customer satisfaction and the absence of deception. But conjecture is not evidence.”
Intuit says the FTC has provided no surveys where an allegedly deceptive ad was shown to a single consumer.
“Nor does the FTC address the fact that nearly 14 million people filed their tax returns for free using Free Edition last year,” Intuit says. “Simply put, unsubstantiated rhetoric, no matter how inflammatory, does not satisfy the FTC’s evidentiary burden to demonstrate that extraordinary emergency relief is needed.”
In any case, Intuit says it’s pulled from the air four commercials the FTC labeled misleading or fraudulent.
But the FTC says it’s not suing Intuit because a “handful of cheeky TV ads said the word ‘free’ too many times in thirty seconds. The FTC has brought this action because every time Intuit claims to consumers that something is ‘free,’ without a clear, conspicuous and complete disclosure of the material limitations of that offer, it engages in deception.”
In response to the March 28 suit, Intuit general counsel Kerry McLean said in a statement: “The FTC’s arguments are simply not credible. 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.
“Over the past eight years, TurboTax products have helped nearly 100 million Americans file their taxes for free, and our most recent free advertising campaign has only accelerated the use of TurboTax free offerings, driving approximately 60% growth from 11 million free filers in 2018 before the campaign launched to more than 17 million free filers in 2021.”
An FTC legal brief Friday said the fact many people use TurboTax for free “does not negate the fact that most taxpayers cannot do so. The evidence makes clear that Intuit is deceiving consumers. The public interest in stopping deception should receive greater weight than Intuit’s claim that the TRO will ‘create chaos for Intuit’s business operations.’”
Intuit argues that the FTC could have made its case years ago.
But now, it says, the federal agency “seeks to weaponize its delay in filing suit and its belated assertion that it now needs immediate relief by April 18, 2022, to obtain relief without affording Intuit an adequate opportunity to respond.”
FTC gave itself time to draft a brief and compile hundreds of supporting exhibits, Intuit says.
“The FTC should not be allowed to use its own delay in seeking relief as a basis for preventing Intuit from responding fully to its allegations and arguments,” says the global company that in fiscal 2021 reported annual revenues of $9.6 billion.
(Intuit also makes QuickBooks, Mint, Credit Karma and Mailchimp.)
For its part, the agency says: “If the FTC had sued Intuit six years ago, three years ago or nine months ago, Intuit would surely argue, equally vociferously, that the FTC had deprived it of an opportunity to be heard.”
The FTC contends it went as “swiftly as possible under the circumstances to take necessary actions to protect consumers while affording Intuit due process, consistent with the FTC’s statutory mandate and mission.”
Moreover, the FTC says it reviewed “copious amounts of material submitted by Intuit and third parties,” including 194 pages of written responses to FTC Civil Investigative Demands, well over half a million pages of document productions and eight days of hearing testimony.
From Google and others, the FTC said it has 92 files about TurboTax paid search advertising, comprising “more than 7.8 gigabytes of data in more than 9.7 million rows of records.”
Although Intuit dropped out of the IRS Free File program nearly a year ago, its press release on the FTC suit boasts its involvement in that effort.
“Intuit has always supported consumers filing for free as a founding member of the IRS Free File program and in our other practices,” said the company’s McLean. “The fact that Intuit complied with the rules and regulations of one government agency, but is now being targeted by another, demonstrates a significant disconnect. With the FTC’s action, companies will be much less willing to enter into public-private partnerships with the government that benefit consumers.”
The FTC suit isn’t the only headache for Intuit.
Stories by the investigative outlet ProPublica tell how TurboTax users had been lured into using the software with promises of free filing, only to discover later they had to pay fees to finish the process.
The FTC suit even quotes ProPublica.
“On June 18, 2018, ProPublica … reported that the IRS Free File Program was underused by eligible consumers, stating that only about 3% of eligible consumers used it. The article theorized that part of the reason for low usage was that companies such as Intuit had confusing names for their free offerings, noting the similarity between TurboTax Free Edition and TurboTax Freedom Edition.
“The next month, in July 2018, Intuit’s head of government affairs unsuccessfully urged that the company change the name of the Free File version of TurboTax from TurboTax Freedom Edition to TurboTax Free File Edition.”
Government lawyers said: “Intuit’s suggestion that a TRO would harm consumers because it would ‘force Intuit to stop marketing … Free Edition’ is an argument that consumers are better off being deceived because some of them do end up filing for free with TurboTax, and they might end up paying for tax services elsewhere.”
“The problem is that they might pay Intuit for TurboTax services if Intuit’s deception is not stopped. Intuit should not be allowed to profit by deceiving consumers just because one-third of them can actually use a product advertised as ‘free’ for free.
“This argument also concedes that Intuit is still marketing Free Edition, as the FTC has shown.”
Said Intuit’s McLean: “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.”
No matter the outcome, TurboTax continues to hire. Some 53 job openings in San Diego were listed Monday.
