LOS ANGELES, CA — L.A. City Attorney Mike Feuer Tuesday announced the details of a lawsuit against the largest tax preparing companies in the nation, alleging they have been deceiving and manipulating taxpayers, costing them millions in unnecessary upgrades and upsells.
Feuer is held a City Hall news conference where he discussed his civil lawsuit accusing Intuit, the maker of TurboTax, and H&R Block of conniving to discourage millions from using the free online filing system provided by the Internal Revenue Service. Those duped by the tax giants qualify to file taxes online for free, he alleges. That includes the lowest-earning 70% of taxpayers — those with adjusted gross income of $66,000 or less. He alleges TurboTax, and H&R Block have been “actively undermining public access to the IRS’ ‘Free File’ program,” the Los Angeles Times reported.
According to Feuer, the deceitful behavior is similar to that of Wells Fargo, which opened thousands of bogus accounts for customers and others. Feuer helped blow up the Wells Fargo scandal in 2015.
“In short, we’ve alleged they have purposely misled low-income taxpayers into spending their hard-earned money needlessly for services they are entitled to get for free,” Feuer said at a late-morning City Hall news conference.
Representatives of both companies denied any wrongdoing.
“H&R Block is proud to have helped millions of Americans with our four free tax filing options, including the IRS Free File program, our free online product, our MyFreeTaxes partnership with the United Way and our partnership with Military One Source,” H&R Block said in a statement. “We are pleased that consumers’ use of H&R Block’s Free File program grew 8 percent this tax season, exceeding the Free File program growth of 6 percent.”
Intuit also responded to the allegations and said any suggestion that the company does not support the IRS Free File Program is “flat wrong. We stand behind our actions as being both appropriate and consistent with our values. More people have filed their taxes for absolutely free with TurboTax than all other tax prep software companies combined. We are committed to offering Americans the ability to file their taxes for free, and we*re committed to the IRS Free File program. We look forward to working with the IRS and private industry to improve the Free File program and help it continue to grow.”
Feuer compared the tax-preparation firms’ behavior to that of Wells Fargo, another of his corporate targets. His 2015 lawsuit against Wells Fargo helped blow up the scandal over the bank’s opening of thousands of bogus accounts for customers and others.
“As in the case of Wells Fargo, where consumers had a right to trust their bank, in this case consumers have to be able to trust their tax preparation services,” Feuer said. “As in the case of Wells Fargo, there appears to be an instance where corporate profit has been elevated over the best interest of consumers. And as in the case of Wells Fargo there appears to be — we allege — a culture that is promoting this elevation of profit over what’s good for taxpayers.”
Free File is a full-featured program that serves taxpayers no matter how complicated their taxes. But it’s little-used; according to an investigation published last week by ProPublica, on which key elements of Feuer’s lawsuits are based, only 3 percent of eligible taxpayers use Free File. That’s 3 million of the 100 million taxpayers eligible.
Feuer alleges that Intuit and H&R Block have deliberately concealed Free File from taxpayers and steered them instead to their own “free” programs, which are watered-down versions of software for which Intuit charges as much as $120 and H&R Block as much as $105. The firm’s “free” programs are useful only to taxpayers with wage income from employers. That leaves out independent contractors or those with itemized deductions.
Feuer said he was seeking restitution for California residents going back four years. If the legal action is successful, individuals will be able to get back what they paid for the non-free service that “wasn’t necessary to pay in the first place,” although he said he was not yet sure what the total amount could be.
The lawsuit was filed on behalf of the people of the state of California, which Feuer and three other city attorneys in the state have the authority to do.
City News and Patch Staffer Paige Austin contributed to this report.
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