TurboTax, H&R Block used 'unfair and abusive practices' to get more money out of people, state regulator finds

TurboTax, H&R Block used 'unfair and abusive practices' to get more money out of people, state regulator finds
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Five tax prep companies deliberately hid information about free programs available to eligible disadvantaged tax payers in an effort to upsell customers to pay for their services, the New York State Department of Financial Services said Wednesday. 

The state regulator concluded in a report, released on the tax-filing deadline, after a yearlong investigation that Intuit, which is the maker of TurboTax, H&R Block, TaxSlayer, TaxHawk and Drake Enterprises engaged in “unfair and abusive practices” that undermined the U.S. International Revenue Service’s (IRS) Free File program intended to aid disadvantaged tax payers. 

The department said its report found the five companies “deliberately" hid website landing pages for the free program, and said doing so led to “unacceptably low participation rates" in the program. Just 2.5 million of 100 million eligible taxpayers used the IRS’s free program last year, according to the New York state regular. 

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“The Free File Program is broken and was exploited by commercial tax preparer companies to drive their own profits at the expense of low-income taxpayers. This is yet another blow to the public trust,” New York’s Superintendent of Financial Services Linda Lacewell said in a statement. “Consumers who most needed a no-cost simple means to file their taxes were left in the cold. We call upon the federal government to work with states to develop a fair, accessible, and modern tax filing system.”

The investigation was launched last year after ProPublica reported in April 2019 that TurboTax hid its Free File page from search engines.

In December, the IRS and the tax-prep companies that participate in the Free File program updated their agreement to bar the companies from excluding their Free File landing pages in internet search results. The IRS has reported a significant increase in Free File use this year.
 
Drake voluntarily left the Free File program in 2019. H&R Block has said that it plans to leave the program after this year's filing season.
 
A report issued by an IRS contractor last year had similar findings about the companies preventing search engines from including their Free File websites in search results.  

The state regulator found the five tax prep companies “deindexed,” or deliberately edited the code, in their landing pages under the program to hide those landing pages from taxpayers during search engine results. The companies also created and marketed their own products as “free” in an effort to lure customers away from the IRS’s free program, according to the regulator. 

The state regulator also said that the IRS provided insufficient oversight, funding and marketing of the Free File program. 

A spokesperson for Intuit said the company disagrees with the state regulator's report, adding that the company has a "deep and long-standing commitment to free tax filing."

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"Respectfully, TurboTax disagrees with many of the opinions expressed in the DFS report, which are based almost exclusively on out of context snippets of years-old public statements that reflect the simple reality that TurboTax’s Free Edition product is free for taxpayers with simple returns, and that customers who use that free product often return to TurboTax as their taxes grow more complex and select a TurboTax paid product in subsequent years," the Intuit spokesperson said in a statement. "This is what 'monetization' means. TurboTax prominently and transparently discloses the price of its paid products and is at all times clear and fair with its customers."

Spokespeople for H&R Block, TaxSlayer, TaxHawk, Drake Enterprises and the IRS were not immediately available for comment. 

Updated July 16 at 9:45 a.m.