The Ins & Outs of the TurboTax Settlement

For years, TurboTax has made a profit by saving people time and money on their taxes, but TurboTax users haven’t been so lucky in recent history. The tax services company (the largest online tax preparer in the U.S.) deceived more than 4.4 million customers between 2016 and 2021. What happened and how?

What Happened?

Starting in 2016, TurboTax used marketing tactics to sway potential customers to sign up for TurboTax Free Edition — a version of TurboTax software for people with simple returns.

Many users who signed up for this TurboTax service were later told they had to pay $59.99 because their returns weren’t simple. 

TurboTax knowingly led these customers to believe they got free tax filing services. Not only was there false advertising, but these users were eligible for IRS Free File. So, the tax filing service should have been free.

Guided Tax Preparation is free through the Internal Revenue Service (IRS) with a service called Free File for those whose AGI (Adjusted Gross Income) is less than $73,000 USD.

At the time, TurboTax was a part of the IRS Free File program. Yet, it guided Free File-eligible customers to sign up for a “free” version of TurboTax they would later have to pay for to drive sales. Today, TurboTax no longer participates in the Free File program.

All 50 U.S. states and Washington D.C. made claims against Intuit Inc., the parent company of TurboTax, for tricking people into paying for a commercial tax filing service when they could have used it for free.

The Outcome

Intuit agreed to pay ​​$141 million US in restitution to affected customers across all 50 states and Washington DC to settle claims.

New York Attorney General Letitia James, who led the charge against Intuit, said, "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."

As part of the settlement, Intuit also agreed to ​​suspend TurboTax's sing-songy ad campaign that calls it "free, free, free" and make additional changes to its advertising methods.  

What Now?

While Intuit Inc.’s stock price sunk a meager 2% on the day the news broke, the settlement is a reminder for investors to invest in companies with sound practices and upstanding leadership. For businesses, it’s a reminder to comply with federal laws and regulations.

There’s one area where we can help. According to the SEC, investor accreditation is required for all investors who want to participate in 506(c) offerings, and it’s up to the businesses raising funds to verify investors are accredited. We can help you find accredited investors so you can publicly solicit funding and stay in good standing with the SEC.