Some of the well-known tax preparation services, H&R Block and TurboTax (Intuit), are facing a lawsuit for misguiding taxpayers. A Los Angeles city attorney has alleged that these for-profit companies defrauded the lowest-earning 70 percent of American taxpayers by making it difficult for them to find free filing options such as the IRS free file and directing them to for-profit alternatives instead. 

The IRS runs a free return filing service called Free File that allows taxpayers making below $66,000 to prepare and file their tax return at no cost using commercial services. 

ProPublica, an independent, non-profit newsroom that conducts investigative journalism in public interest, revealed that commercial tax preparation companies such as H&R Block and Intuit’s TurboTax have lobbied to ban the IRS from offering free tax preparation and filing service. They have also been accused of using deceptive advertising and design to misguide taxpayers. National Public Radio elaborates: 

LA City Attorney Mike Feuer filed the civil complaints on Monday against Intuit and H&R Block on behalf of the people of California. In the filings, Feuer writes that for years, the companies have been ‘actively undermining public access to the IRS’s Free File program, while simultaneously employing deceptive and misleading advertising and design schemes intended to induce taxpayers into buying expensive TurboTax and H&R Block products. 

The Free File program went into effect in 2003. A consortium of tax-prep companies formed the Free File Alliance and agreed to offer no-charge tax prep to millions of Americans. In exchange, the IRS promised it wouldn’t offer its own free filing software. 

Only about 3% of taxpayers eligible for Free File are using it – resulting in Americans paying an estimated $1 billion a year in unnecessary fees to the tax-prep companies, by ProPublica’s calculations. 

ProPublica found that tax-prep companies used a range of tactics to lead low and moderate-income people into paying to file taxes. For example, reporters discovered that Intuit used a bit of code to hide the free version of TurboTax from Google and other search engines. The products are also confusingly named: The ‘Free Edition’ of TurboTax actually charges a fee to file state forms, while the truly no-cost version is named ‘Freedom Edition’ and isn’t listed on its homepage. 

In a statement to the Los Angeles Times, Intuit said that it stands behind its actions and that ‘[a]ny suggestion that Intuit does not support the IRS Free File Program is flat wrong. H&R Block told the Times it was ‘proud to have helped millions of Americans file their returns under the Free File program and has updated its practices to make Free File easier to find.

Feuer, the LA city attorney, compared the behavior of the tax-prep companies to that of Wells Fargo, the bank he sued in 2015 over its deceptive practices. ‘That was a major corporation taking advantage of the consumer, he told the Times. There are some parallels. I want to hold the tax-preparation companies accountable and I want to deter this behavior.

The IRS stated that it will review its Free File program. The Treasury Inspector General for Tax Administration, the IRS’ independent oversight group, will also investigate Free File. Both Democrats and Republicans on the Senate Finance Committee picked up this matter and want to know if the IRS Free File is achieving its goal. A letter was sent to IRS Commissioner for answers.” 

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