Here’s the short answer: If you made less than $34,000 in 2018 and paid TurboTax to file your federal income taxes, then you most likely got ripped off.
I know, it’s July, the sun is shining, and the last thing you want to think about for the next eight or nine months is taxes. Well, Intuit, the maker of TurboTax, would love for you to forget too. It most certainly hopes you glossed over the revelations by intrepid reporters from ProPublica who discovered its egregious conduct.
TurboTax’s recent machinations are like the digital version of Volkswagen’s emissions scandal. But instead of manipulating software to hide higher levels of pollutants coming out of a car, TurboTax manipulated software and the metadata on its own site so certain results wouldn’t show up in Google searches. The tactic likely prevented millions of Americans from filing their taxes for free. Instead, these individuals were nudged to TurboTax’s premium products and charged for a service they should have gotten without paying.
While ProPublica’s article received attention and even led some regulators to open investigations, it deserves amplification as many consumers who may have been short-changed are not aware of what happened, how they were deceived, or what recourse they should take. Furthermore, Turbo Tax has neither shown remorse nor taken real corrective action (an e-mail to Intuit requesting comment for this article did not receive a reply).
What TurboTax Did
As part of an agreement with the Internal Revenue Service (IRS), TurboTax and 13 other tax-preparation firms are required to provide assistance with federal tax returns. The agreement requires the consortium, known as the Free File Alliance, to offer free help and electronic filing of federal tax returns for taxpayers who earned less than $66,000. Each company has its own guidelines; TurboTax requires a taxpayer to have an adjusted gross income (AGI) of less an $34,000 or meet another condition (see graphic below):
Why would TurboTax and others agree to this? Because in return, the IRS committed not to compete and offer its own free online tax software to consumers. In other words, TurboTax affirmatively opted in and committed to the IRS that it would offer free tax filing to lower-income Americans.
The usage statistics of the Free File program are absymal. As Nina Olsen, the National Taxpayer Advocate, summed up, “the fact that less than 3% of eligible taxpayers are using Free File suggests the program is failing to achieve its objective.” To contextualize, it is important to note that 70% of American tax payers are eligible to file their taxes for free online using the IRS’ Free File program.
While there are perhaps many reasons for the limited usage—such as confusing and disparate eligibility requirements that depend on the software provider—TurboTax and other tax filing services also use deceptive design tactics, called dark patterns, to confuse and steer people away from truly free versions of their services.
TurboTax’s obfuscation took two forms as ProPublica describes: “buying ads to direct people who searched for the truly free version to products where they would eventually have to pay. Second, it suppressed the landing page of the truly free product so that it would never appear.”
First, TurboTax placed misleading ads that masqueraded as the free file service, but, in reality, steered people towards its paying products. For example, ProPublica ran a test searching on Google for “irs free file taxes.” As you can see from the image below, the search results make it seem as if a user is on the path to filing for free.
ProPublica tried to fill out a tax return, for example, as an independent contractor for Task Rabbit who made $29,000 in 2018. But after entering all the information, TurboTax displayed a page saying that she wasn’t eligible to file for free and would need to pay $119.99 to use Turbo Tax’s “Self-Employed” edition.
Remember, that according to the agreement to which TurboTax consented, an individual making less than $34,000 should be able to prepare and file her taxes for free, regardless of income source and other deductions. Despite this agreement and obviously knowing that the individual is eligible to file for free, TurboTax never mentioned the free version. “It turns out that if you start the process from TurboTax.com, it’s impossible to find the truly free version. The company itself admits this.”
The second way Inuit deceived users was by adding “code on its site telling Google and other search engine not to list TurboTax Free File in search results.” Essentially, TurboTax told Google to suppress the site where people could actually file for free, an edition known as “TurboTax Free File,” no matter what they typed into the search bar. (In the wake of ProPublica’s reporting, Intuit relented and changed the code, but that was after the filing deadline for 2018 taxes, meaning that many who searched and filed their taxes by April 15 had already needlessly paid).
The result? Users like an 87-year-old veteran with a gross income of $11,000 from Social Security and a military pension were steered toward paid products. As a thank you for her service, TurboTax allegedly charged her $124 to file even though she should have been eligible for free tax filing.
How TurboTax Failed a Second Time
Companies make mistakes, but the true test of a CEO is how he or she responds to these mistakes. Some CEOs respond with humility and contrition. And then you have Intuit’s CEO, Sasan Goodarzi, who failed his crucible and chose to respond with spin over substance. Instead of accepting responsibility, Mr. Goodarzi obfuscated and denied.
The right thing to do would have been to proactively issue refunds to anyone making less than $34,000 who was eligible to file for free, but paid TurboTax to file. TurboTax has the data and could have easily taken this step.
Goodarzi didn’t do this.
The right thing to do would have been to instruct customer service agents to respond with kindness and empathy to customers calling in and to direct agents to easily provide refunds.
Goodarzi didn’t do this.
Instead, TurboTax representatives were caught dissembling to customers who called asking for a refund; some agents even had the audacity to call the reporting “fake news.” If you read some of the transcripts, you see corporate culture at its worst with agents denying, spinning, and doing anything they can to avoid issuing refunds.
The right thing to do for a CEO would have been to be contrite and speak to employees about how the company would improve.
Goodarzi didn’t do this.
Instead, in an internal video to employees, Goodarzi claimed the deception was in the best interest of taxpayers. “Our choice around search was intended to be [in] the best interest of taxpayers so they were more fully informed about their options and could choose what they felt was best for them.”
Let's be crystal clear. The best interest of a taxpayer making less than $34,000 a year is being able to easily file her taxes for free and not being presented sub-optimal options with confusing names. The most shameful part of TurboTax's actions is that it ensnared Americans who could least afford to pay. The $119 TurboTax charged could have been used to put food on the table, save for a rainy day, or invest for long-term financial security.
In the internal video, Goodarzi continues, “To avoid confusion between the IRS Free File program and our own free product, we also decided to have the landing page for the IRS product we offer not rank in search results.” This is Goodarzi admitting to ProPublica's findings. But here’s another option for Mr. Goodarzi. Why not have the landing page for TurboTax’s free product not rank in search results and have the default result be the IRS product? Given that the IRS Free File product results in lower costs for lower-income Americans, wouldn’t this have been the option if you were concerned about the “best interest” of tax payers?
To offer perspective, just imagine the CEO of Wells Fargo saying that Wells' opening fake accounts was intended in the best interest of customers to fully inform them about their account options. Would you believe him? Well, then you shouldn’t believe Goodarzi’s drivel either.
What Steps You Should Take
Read ProPublica’s reporting and educate yourself. Justin Elliott and his fellow reporters did a wonderful job uncovering TurboTax’s nefarious behavior and the resulting articles make a terrific series.
Determine if you qualify for a refund. If you do, call TurboTax (888-777-3066) and, if legal, record your call. If you want to pay it forward, you should fill out the questionnaire and add your results to ProPublica’s database.
If TurboTax denies you a refund, I would recommend disputing the payment to TurboTax with your credit card company.
Call and complain to your congressperson and ask them to get involved on your behalf.
Does TurboTax owe you a refund? Perhaps. Is that enough? Not really. Intuit also owes the American public a thorough and sincere apology.