FTC Orders TurboTax to Cease ‘Deceptive’ Advertising

The Federal Trade Commission (FTC) has delivered a stern rebuke to Intuit, the creator of TurboTax, accusing the company of engaging in "egregious" violations of federal prohibitions against deceptive acts and practices. The ruling comes just a week before the commencement of the tax-filing season. The FTC's three commissioners, led by Chair Lina Khan, upheld the decision that TurboTax's advertising had been misleading.

The agency emphasized that TurboTax must now choose between refraining from advertising any service as free unless universally applicable or providing clear disclosures regarding eligibility for the purported free offering. These disclosures should be prominently placed, especially in proximity to the term "free," according to the 91-page opinion. The ruling follows a previous decision by the chief administrative judge within the agency, and the 3-0 decision by the commissioners underscores the gravity of the alleged violations.

TurboTax's Current Stand

TurboTax's current advertising for its free edition asserts that approximately 37% of filers qualify for the service. However, the FTC contends that TurboTax's historical advertising misled consumers by repeatedly presenting its services as entirely free, even though a significant majority of taxpayers did not meet the eligibility criteria.

In 2022, Intuit (TurboTax owner) reached a $141 million settlement with state attorneys general, resolving accusations of misleading customers into paying for tax services. While Intuit did not admit wrongdoing in the settlement, the company has vigorously contested government allegations of deceptive practices.

Reacting to the FTC ruling, an Intuit spokesperson, Tania Mercado, criticized the decision, characterizing it as the outcome of a "biased and broken system." She asserted that Intuit has appealed the decision, expressing confidence that the company will prevail when the matter is reviewed by a neutral body.

FTC's Stance and Criticism

The ruling specifically scrutinized TurboTax ads that ran from November 2018 to April 2022, with the understanding that they continued despite the company's awareness that a significant portion of taxpayers did not qualify for free filing. The commissioners concluded that Intuit knowingly contributed to consumer frustration by leading them to believe they could file for free while imposing substantial restrictions on eligibility.

The ruling additionally prohibits Intuit from misrepresenting important details about its products or services, including but not limited to price, refund policies, and consumers' capacity to assert a tax credit or deduction or file their taxes online accurately without necessitating the use of TurboTax's paid service.

Impact on Investors and Market

Following the FTC ruling, Intuit shares closed 1.35% higher on Monday. However, in after-hours trading, the shares dipped by 0.2%. The market's response indicates a certain level of uncertainty as the company navigates the aftermath of the regulatory decision.

The FTC's decision places TurboTax and its parent company, Intuit, in the spotlight for their advertising practices. As taxpayers gear up for the upcoming filing season, the industry watches closely to see how Intuit responds to the allegations of deceptive advertising and whether the company can restore trust among its user base.