Judge Tentatively Denies TurboTax Maker’s Request to Stay Consumer Fraud Claims

A California judge Tuesday said he would likely retain jurisdiction over the proceedings of a consumer fraud suit against Intuit, the maker of TurboTax. (Coolcaesar via Wikipedia)

LOS ANGELES (CN) – A California judge said Tuesday that presiding over consumer fraud claims against tax preparation software company Intuit would not obstruct a federal agency’s review into whether low income customers have full access to free tax filing programs. 

Under a 2002 agreement with the Internal Revenue Service, 12 companies – including TurboTax-creator Intuit – offer free tax filing computer programs to individuals making $66,000 or less a year. 

But Intuit misleads the poorest users of their tax filing software by upselling pricier services even when the consumers are eligible to file their taxes for free, the Los Angeles City Attorney’s office said in a May 6 lawsuit.

Intuit also makes the free version of their tax filing programs difficult to access by coding their website to make the free program not immediately apparent to customers, the lawsuit claims, adding that the scheme violates the Golden State’s unfair competition law.

In a demurrer filing, attorneys for Intuit said the matter should be stayed pending federal review of the program and that any action in court would interfere with congressional oversight procedures.

“The Free File program is a complex administrative regime best handled by the IRS and Congress, and more effective means of redress are available through the IRS’s comprehensive review of the program,” the motion said. “This Court should abstain from entering this fray.”

At a hearing Tuesday on the demurrer motion, Los Angeles Superior Court Judge Christopher Lui said in a tentative decision that he would retain jurisdiction at this stage of the proceedings. 

“At this point, the complaint wouldn’t require the court to step into the shoes of the IRS,” Lui said, adding that abstention would be improper and that a “stay is outside the scope of a demurrer.”

Alejandro Mayorkas of WilmerHale, an attorney for Intuit, told Lui that the LA City Attorney could not request a “prescriptive change” to an agreement between the IRS and tax filing companies.

Calling the free file program “carefully calibrated,” Mayorkas said the agreement was designed to adapt to evolving market conditions, changes to the tax filing population and adjustments to IRS’s goals. 

The program is already under review by Congress and the Treasury Inspector General for Tax Administration, Mayorkas told Lui.

Los Angeles Deputy City Attorney Connie Chan told Lui she agreed with the tentative decision and that Intuit should be required to post “prominent disclosures” on their site regarding the various filing options.

“This case is about consumer fraud, not about tax policy. Intuit manipulated consumers and lied by telling them they need to pay for products they didn’t need,” Chan said in court. “They can’t contract their way out of California consumer protection law.” 

The City Attorney’s office said in a filing opposing the demurrer that abstention would leave Californians without any remedy to resolve their claims.

“Courts may not abstain where there is no alternative means for obtaining all of the remedies plaintiff seeks, and where the legislature and administrative agencies have done no more than ‘state that they intend to address an issue,’” the filing states, citing a California appellate court’s ruling in Klein v. Chevron.

Lui told both parties that a pending lawsuit against Intuit filed in Santa Clara County Superior Court could play into his ruling on abstention.

Intuit’s demurrer is under submission but Lui did not indicate when he would rule. 

A status conference is scheduled for November 19.

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