Los Angeles' city attorney is suing tax-preparation software companies H&R Block and TurboTax maker Intuit, alleging that they "defrauded the lowest earning 70 percent of American taxpayers" by impeding public access to an IRS program. The IRS Free File program is intended to help people who make less than $66,000 a year file their taxes for free using commercial services.
But that program — and the consortium of tax-prep software companies that take part in it — is under scrutiny after reporting from ProPublica found that the companies make the free options difficult to find and instead funnel eligible taxpayers toward profit-generating options.
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.