H&R Block, TurboTax sued for allegedly 'deceiving' taxpayers into paying for free services

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Los Angeles City Attorney Mike Feuer filed a lawsuit against Intuit – the parent company of TurboTax – and H&R Block this week amid mounting claims major U.S. tax preparers hid options for low-income individuals to use free filing services to prepare their tax returns.

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"Taxpayers should never be misled into needlessly spending their hard-earned money for services to which they’re entitled for free. But that’s what we allege happened here," Feuer said in a statement on Tuesday.

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Individuals with incomes of $66,000 or less are eligible to file for free through the IRS’ free file program – a partnership with third-party preparers. According to Feuer, while 70 percent of Americans are eligible to file through this program, only 2.5 percent did so in fiscal 2018 – a statistic he attributes to the companies’ “deliberate efforts to hide the availability of their Free File products.”

A recent report from ProPublica claimed that Intuit tricked taxpayers into paying for services by hiding the free-service options from Google searches and misleading advertising. It reportedly did that by adding code on its site telling search engines not to list TurboTax Free File in search results.

Feuer’s office said the companies use their “inferior alternative 'free' products to lure consumers to their websites, only to then falsely inform these consumers that they are not eligible for free services.” The suit is calling for restitution for taxpayers who paid for services when they could have received them for free.

In a statement, a spokesperson for Intuit said suggestions it does not support the IRS Free File program are "flat wrong."

"We are committed to offering Americans the ability to file their taxes for free, and we’re committed to the IRS Free File program," the spokesperson said.

H&R Block said it is "proud to have helped millions of Americans with our four free tax-filing options, including the IRS Free File program."

New York’s Democratic Gov. Andrew Cuomo called for an investigation into the same “deceptive” practices earlier this month.

A group of senators also called for an IRS review and the agency said on Friday it would assemble a team to look into the Free File program.

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There are escalating tensions on Capitol Hill between lawmakers and the major tax companies. Some lawmakers think the IRS should create its own filing software, allowing it to compete with the private tax preparers. New York Democrat Alexandria Ocasio-Cortez went so far as to say the IRS should do your taxes for you, while Massachusetts Democrat Elizabeth Warren proposed legislation that would move the process in that direction.

In legislation advancing through Congress, however, an IRS reform bill includes a provision that would prohibit the agency from creating its own filing software and competing with third parties.