LOS ANGELES (CN) – Two companies that Americans turn to for help preparing and filing taxes defrauded their poorest customers, who were upsold expensive services even though they were eligible to file their taxes for free, according to lawsuits filed in California Monday.
The Los Angeles City Attorney’s office claims in separate suits filed in Los Angeles County Superior Court that TurboTax-maker Intuit and H&R Block violated the state’s unfair competition law.
TurboTax and H&R Block prepare and file taxpayers’ state and federal income taxes online or through a software program. Through an agreement with the Internal Revenue Service, individuals making less than $66,000 a year can use a free version of TurboTax or H&R Block.
Los Angeles City Attorney Mike Feuer said in the complaint against Intuit that the company makes it difficult for TurboTax users to track down its free, high-quality “Freedom Edition” and lures low-income customers to a lower-quality software called the “Free Edition” that is also free but “useless to all but those with the simplest of tax returns.” The company then manipulates “Free Edition” users into paying for program updates, according to the complaint.
Intuit also added code to its website to prevent its “Freedom Edition” product from appearing in any search results on Google and other online search engines.
“Intuit has for years defrauded the lowest earning 70% of American taxpayers – who are entitled under a private industry agreement with the IRS to file their taxes online for free using commercial products – by 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 unnecessarily purchasing expensive TurboTax products,” Feuer said in the complaint.
In a statement, a spokesman for Intuit said that more people have filed their taxes for 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,” spokesman Rick Heineman said. “Any suggestion that Intuit does not support the IRS Free File Program is flat wrong.”
In a separate complaint against H&R Block, Feuer said the company has “deceived thousands, if not millions, of low-income consumers into unnecessarily spending sometimes hundreds of dollars on H&R Block products – money that could go toward medical bills, rent payments, or groceries.”
Both complaints cite recent reporting from investigative news organization ProPublica, which detail how the companies hid their free tax filing services from consumers.
H&R Block also directed its customer service staff to point consumers to the paid service instead of helping them find the website for the free service, according to the complaint.
The complaints ask for injunctions against H&R Block and Intuit to stop them from engaging in any unfair and fraudulent business practices. The suits also seek restitution of money that consumers, who were eligible to file their taxes for free, paid to the services over the last four years.
In 2013, Intuit settled two class action lawsuits that claimed the company violated the Truth in Lending Act and California business and usury laws.
H&R block did not immediately respond to a request for comment Monday.