An estimated 41 percent of American households (or 62 million tax-filing units) with simple tax returns could file automatically without all the fuss, according to the National Bureau of Economic Research. The IRS already has the data and it would save taxpayers $30 billion in tax preparation services. However, companies like Intuit-owned TurboTax have lobbied to keep tax preparation a profitable, privatized business.
That’s why a recent lawsuit against Intuit Inc. (INTU) ended up with the company shelling out a $141 million settlement. The money will be spread among Americans who have been unfairly charged for tax preparation services that were supposed to be free.
How the Intuit TurboTax settlement works
Intuit bought TurboTax in 1993. Five years later, the publicly traded parent company began lobbying in Washington D.C., spending more than $41 million in the decades since then. In 2021, Intuit spent at least $3.3 million on lobbying efforts, according to OpenSecrets. These efforts have helped keep tax preparation a privatized, profit-inducing business, unlike the 36 nations outside of the U.S. that allow some taxpayers to file return-free taxes or pre-populated returns.
In addition to this lobbying, Americans have found a glaring issue with TurboTax marketing practices. The settlement agreement sheds light on the two TurboTax products, one called TurboTax Free Edition and the other called Free File.
Free File is associated with the IRS Free File Program, while the Free Edition is a freemium version that charges people who don’t meet certain criteria for the free edition.
Intuit allegedly “lured” customers with free tax preparation, only to charge them. “For years, Intuit misled the most vulnerable among us to make a profit. Today, every state in the nation is holding Intuit accountable for scamming millions of taxpayers, and we’re putting millions of dollars back into the pockets of impacted Americans,” says New York Attorney General Letitia James.
Who gets the Intuit settlement?
Intuit didn't admit fault, but it did agree to a $141 million settlement. Customers who have been cheated by Intuit’s freemium file system from all 50 states and D.C. may be eligible for the settlement. The restitution amounts to $30 per person per year across nearly 4.4 million customers who used the software from 2016–2018.
Intuit will automatically reach out to eligible customers by mail. In a company blog, Intuit committed to helping “more than 40 million taxpayers prepare and file their tax returns free of charge over the next three years.” Given that it doesn’t accept any wrongdoing in what experts have deemed an obvious and intentionally sneaky marketing ploy (Intuit says it’s “clear and fair with its customers”), it may be hard for Americans to trust what Intuit says about its future.
With continued privatization and lobbying in the tax preparation industry, what choice do many Americans have but to resort to these often-predatory solutions? The solutions for change will take time, despite the sizable restitution.