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TurboTax Faces Legal Blow as FTC Rules Against Deceptive ‘Free’ Tax Service Ads

The Federal Trade Commission (FTC) issued a final ruling on Monday, determining that TurboTax, the widely-used tax filing software, engaged in deceptive advertising practices. The commission banned the company, owned by Intuit, from advertising its services as free unless it is genuinely free for all customers.

The FTC found that TurboTax violated the FTC Act by running ads for “free” tax services that were not accessible to many customers, including those receiving a 1099 form for gig economy work or farm income earners. This deceptive advertising misled consumers, leading to the FTC’s initial lawsuit against Intuit in 2022.

Administrative Law Judge D. Michael Chappell had announced the initial decision in September, which the commission upheld on Monday. Intuit had appealed to the FTC as part of the process.

In response to the ruling, Intuit issued a statement on Monday, expressing its intention to appeal “this deeply flawed decision” to a federal circuit court outside of the FTC. The company criticized the FTC’s process, alleging bias and a broken system where the commission serves multiple roles in the same case.

Under the FTC’s order, Intuit is prohibited from advertising or marketing any goods or services as free unless they are genuinely free for all customers. The company is also required to clearly disclose the percentage of customers that qualify for the free service, near the “free” claim in its advertisements. If the service is not free for the majority of consumers, TurboTax must explicitly state that fact.

Additionally, Intuit must disclose all terms, conditions, and obligations necessary to obtain the “free” service in a clear and conspicuous manner. The order also prevents Intuit from misrepresenting material facts about its products or services, including pricing, refund policies, and consumers’ ability to claim tax credits or deductions without using TurboTax’s paid service.

This ruling follows a 50-state settlement in May, where approximately 4.4 million people were slated to receive checks from TurboTax. The settlement addressed allegations that Intuit steered low-income Americans away from free tax-filing services, as highlighted in a 2019 ProPublica report. The investigation revealed that eligible clients were directed toward the paid version of TurboTax’s filing services, and the settlement aimed to compensate affected individuals.

TurboTax’s deceptive marketing practices have faced criticism, with New York Attorney General Letitia James stating in a May 4, 2023, press release that the company’s actions cheated millions of low-income Americans trying to fulfill their legal tax obligations. The FTC’s recent order aims to rectify these deceptive practices and ensure transparency in TurboTax’s advertising.