SCAG: South Carolina to receive $2 million from settlement with TurbTax

COLUMBIA, SC (WOLO)– South Carolina Attorney General Alan Wilson says a multistate agreement with TurboTax, Intuit gives the Palmetto State $2 million from the company for deceiving customers into paying for services which should be free. Nationwide, officials say TurboTax will pay $141 million in restitution to customers who were unfairly charged, and must suspend its “free, free, free” ad campaign which authorities say lured customers with promises of free services only to deceive them into paying for services.

“TurboTax’s misleading advertising caused many South Carolinians to unnecessarily pay for tax preparation services,” Attorney General Wilson said. “I am pleased to be able to provide relief to South Carolina consumers, including members of the military, who were deceived by TurboTax’s business practices.”

According to officials, the investigation began after ProPublica reported TurboTax was using deceptive practices to steer lower income residents away from free federally-supported tax services and towards its own commercial products. Authorities say TurboTax offers two free versions, one of which was made through participation with the IRS Free File Program which allows taxpayers making about $34,000 and military members to file for free. Investigators say the IRS agreed not to compete with tax companies by providing its own electronic filing service to taxpayers. Officials say the company also offers TurboTax Free Edition, which is only free for tax payers with “simple returns” under the company’s definition. Investigators say TurboTax has aggressively marketed this service of a “freemium” product, where the word “free” was used extensively through advertising. In contrast, officials say this Free File product is only free for 70% or taxpayers.

Investigators say Intuit used similar names for the IRS Free File Program and the “freemium” product, as well as paying for search advertisements to direct taxpayers looking for the IRS Free File Program to the “freemium” product instead. During the 2019 filing season, authorities say Intuit purposely blocked its IRS Free File service from appearing in search engine results. Additionally, investigators say Turbo Tax said it would “recommend the right tax solution,” but it never displayed or recommended the IRS Free File Program.

According to authorities, Intuit will pay restitution to millions of customers who used TurboTax’s Free Edition for the 2016-2018 tax years and were told they had to pay to file even though they were eligible to file for free. Officials say those affected are expected to receive a roughly $30 payout for each year they were deceived into paying. Those affected should receive notices and a check in the mail.

Under the agreement, Intuit must also refrain from making misrepresentations when promoting online tax prep products, enhance disclosures in its marketing of free products and refrain from making customers start over if they switch from a paid Intuit product to a free one.

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