H&R Block and Intuit, the parent company of Turbotax, are accused in lawsuits filed this week of misleading low-income taxpayers into paying for free services, Los Angeles City Attorney Mike Feuer announced Tuesday.
The lawsuits, filed Monday, allege the companies have mislead and intentionally taken advantage of taxpayers they said they were intending to help.
The companies named in the lawsuits reached an agreement with the Internal Revenue Service in 2002 to provide free online tax preparation and filing service for low income tax payers. Though the "Free File" program is available to 70 percent of taxpayers (those making up to $66,000), less than 2.5 percent of those eligible actually do, according to the city attorney's office.
The lawsuits allege that while the companies did claim to provide those services, they engage in “misleading practices” and hide the availability of those services, leading taxpayers to needlessly pay.
Feuer said during a news conference Tuesday that the main websites for both companies say they will guide visitors to the best online tax preparation service, but in many cases, the services did not end up being comprehensive, or free. The lawsuits allege the websites act as “decoys” to draw taxpayers in, and that there is no visible link to the free online services.
The services "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, and must instead purchase expensive products they do not need, and can scarcely afford," the complaints allege.
The city attorney’s office also found that the companies allegedly used encoded programs for the websites that offer truly free services, so that those sites don’t come up in search engine inquiries.
“This makes it essentially impossible for average person who was seeking free services through web to get them at all,” Feuer said.
The city attorney added that his office began investigating the matter after ProPublica published a report about the misleading practices of tax preparation services.
Feuer is hoping the lawsuits lead to these companies stoping their misleading practices and restitution for California taxpayers who have needlessly spent money using the services. The city attorney also hopes that the companies will be held accountable for the alleged fraudulent business practices, and that it deters others from engaging in similar behavior.
The lawsuits come weeks after the House of Representatives passed a controversial bill preserving these two companies' agreement with the IRS.
The "Tax Payer First Act" is now in the Senate and Feuer urged senators to reject it.