TurboTax “Free” Edition: The Convoluted History of Free Electronic Tax Filing Software

Photo by Kelly Sikkema on Unsplash

by Emily Schmidt, Blog Chair, University of Cincinnati Law Review

I. Introduction

In 2021, Intuit—the company who produces popular income tax preparation platform TurboTax—aired a fifteen-second television commercial for their TurboTax Free Edition program.1 In a span of fifteen seconds, the script of the advertisement included the word “free” twenty times.2 Intuit ran an entire advertisement campaign for the TurboTax Free Edition program using the slogan: “Free, free free free.”3 Any person who heard one of these TurboTax commercials may reasonably associate the product with being free. However, in tax year 2020, only one-third of American taxpayers met the eligibility requirements for TurboTax Free Edition.4  

TurboTax by Intuit has been routinely criticized for its misleading advertisement tactics.5 In March 2022, the Federal Trade Commission (“FTC”) issued an administrative complaint against Intuit for violating federal law by “deceiving consumers with bogus advertisements pitching ‘free’ tax filing that millions of consumers could not use.”6 At the same time, the FTC filed a complaint in federal court in the Northern District of California requesting the court to order Intuit to immediately stop all deceptive advertising tactics.7

On its face, the notion of TurboTax providing Americans a free method to file their taxes appears well-intentioned. In fact, for several years, Intuit produced two “free” filing methods: ‘TurboTax Free Edition’ and ‘IRS Free File Program Delivered by TurboTax’.8 Intuit was one of several large tax preparation companies to offer a Free File Program in partnership with the IRS.9 But, instead of encouraging eligible taxpayers to file for free with the IRS Free File version of TurboTax, Intuit intensely advertised TurboTax Free Edition—which, in fact, was not free for the majority of taxpayers. The FTC’s complaint against Intuit paints an alarming picture of intentional deception and corporate greed.

This article discusses the events that led to FTC intervention in TurboTax’s product marketing. Section II provides a broad overview of the history of TurboTax Free Edition and free tax preparation software generally. Section III then explores the benefits of providing a government sponsored free tax filing software. Finally, Section IV concludes by arguing that the IRS should provide free tax filing software to all Americans, eliminating the market for TurboTax Free Edition entirely.

II. Background

In 2002, the IRS entered into an agreement with the Free File Alliance, LLC, a non-profit organization comprised of tax preparation companies, to provide free filing services for up to seventy-eight million taxpayers.10 In the preceding years, there had been discussions among lawmakers about whether the government should develop its own free tax return filing system.11 Tax preparation giants like Intuit feared this would encroach into the industry and result in the federal government serving as a direct competitor to TurboTax.12 So, large tax preparation companies like Intuit and H&R Block formed the Free File Alliance and entered a public-private partnership with the IRS.13 The Free File Alliance offered several free filing options for taxpayers who met certain criteria, such as age or income. The Free File options were listed on the IRS website, but the companies in the alliance were not required to otherwise advertise the free services.14

In 2004, a relatively small tax prep company, TaxACT, decided to offer free filing services to all taxpayers with no eligibility restrictions.15  The IRS Free File Program saw its most success in 2005, when Intuit and H&R Block followed suit and allowed all taxpayers to use Free File software. That year, about five million returns (eight percent of all e-filings) were processed through a Free File Program.16 By contrast, only 2.5 million returns were filed via Free File during tax year 2019.17 The IRS implemented restrictions on the Free File Program towards the end of 2005, limiting the services to taxpayers below a particular income threshold.18 For taxpayers eligible for Intuit’s Free File product (based on their adjusted gross income), the software “covered all tax situations, forms, and deductions, thus providing coverage equal to Intuit’s most expensive TurboTax online product.”19

Tax prep companies learned that marketing their services as free was an advantageous business strategy.20 Several companies, including Intuit, launched “free” editions of their software separate from the IRS Free File Program.21 At the same time, companies worked to actively shield taxpayers from accessing their IRS-partnered Free File websites. At least five tax prep companies, including Intuit, inserted code into their Free File webpages that prevented search engines like Google from displaying the IRS Free File programs.22 Instead, when a person searched the web for “free tax filing,” software like TurboTax Free Edition was much more likely to appear as the top search result. Additionally, the TurboTax website never provided a direct hyperlink to the TurboTax IRS Free File Program, adding an additional layer of confusion and complication for consumers.23

An audit by the Treasury Inspector General for Tax Administration revealed that during tax year 2018, around fourteen million taxpayers who were eligible to file for free with an IRS Free File Program instead filed with a paid commercial software.24 The same year, Intuit bid on paid search terms with Google and Bing, allowing Intuit to place custom advertisements for their commercial products at the top of the search results whenever the company won auctions for search terms including: “free file”; “free file irs”; “free file taxes”; “free file taxes online”; “free file turbotax”; “irs free file”; “irs.gov/freefile”.25 Even when consumers searched specifically for Intuit’s actual free filing program, the company redirected as many users as possible to TurboTax Free Edition, which often resulted in taxpayers paying to file.26

In October 2021, Intuit withdrew from participation in the IRS Free File Program.27 The company stated that “due to the limitations of the Free File program and conflicting demands from those outside the program, we are not able to continue in the program and deliver all the benefits that can help consumers make more money, save more, and invest for the future.”28 Declaring themselves to be the “industry leader in free tax preparation,” Intuit noted that the company would remain committed to offering free tax preparation moving forward.29

After a three-year investigation into Intuit’s practices, the FTC issued an administrative complaint against the company in March 2022 for deceptive advertising in violation of Section 5 of the Federal Trade Commission Act.30 The filing highlighted the extent to which Intuit knowingly mislead consumers; for example, the FTC obtained written communications from Intuit employees dating back to 2013 stating that the company was aware of how their branding and marketing strategies confused consumers.31 In its request for relief, the FTC asked that Intuit be prohibited from misrepresenting that a good or service is “free” or misrepresenting “any material fact, in connection with the advertising, marketing, promoting, or offering of any goods or services.”32 The FTC also requested that Intuit be required to (1) notify customers of the relief ordered, (2) file periodic compliance reports with the FTC, and (3) create and maintain certain records relating to accounting, personnel, marketing materials, and consumer complaints and refund requests.33

Three weeks later, Intuit answered the complaint, and requested that the administrative law judge dismiss it with prejudice and award court costs and attorneys’ fees.34 While the judge did not grant this relief, Intuit did find success in the Northern District of California shortly after. The FTC had moved for an emergency temporary restraining order and preliminary injunction against Intuit on March 28, 2022, and the court held a hearing on April 21.35 The next day, the court denied the FTC’s request.

The motion was denied for three reasons. First, Tax Day had already passed, meaning Intuit’s advertising campaigns had ended for the year and there was no immediate harm of consumers being subject to potentially misleading advertisements.36 Second, at some point before Tax Day, Intuit removed its “most plausibly deceptive” advertisements, which “repeated the word ‘free’ a dozen or more times over 30 seconds before a very brief disclaimer.”37 Third, because the FTC had already launched an administrative proceeding against Intuit, the district court noted that an administrative law judge with expertise in the matters at hand would hear the issues prior to Tax Day 2023.38

On May 4, 2022, Intuit moved to withdraw the FTC administrative complaint from adjudication, notifying the FTC that the company had entered into a “nationwide settlement agreement with the attorneys general of all 50 states and the District of Columbia” which “affords the public all of the material relief the FTC [sought] to obtain. . . .”39 Importantly, Intuit did not admit to any liability in the settlement.40 The settlement provided for a $141 million payment from Intuit to provide restitution to any “covered consumer”41 and required the company to agree to abide by several conditions. A preliminary report notes that 4,472,788 individuals meet the criteria for “covered consumer.”42 Covered consumers will receive about $30 for each year they were deceived into paying for a commercial version of TurboTax between tax years 2016 and 2018.43

Moving forward, advertisements for TurboTax Free Edition must provide a clear and conspicuous explanation of the material limitations on consumers’ ability to use the product for free and must state that not all taxpayers qualify to use the free product.44 TurboTax must allow customers to retain any entered data if the customer begins filing through a paid version and then switches to the Free Edition product.45 Intuit must submit a compliance report one year after entering the settlement to report whether and how the company is in compliance with every section of the agreement.46 They must also maintain all the types of records originally requested in the FTC complaint.47

The FTC Commissioners granted Intuit’s motion to withdraw, so the matter will not go before an administrative law judge. Time will tell whether Intuit abides by all the requirements of the settlement agreement to keep the matter out of adjudication.

III. Discussion

Without question, Intuit has profited remarkably by partaking in deceptive and misleading advertisement tactics.48 Meanwhile, the IRS Free File Program has hardly achieved its goal of making free tax preparation more accessible and less burdensome on taxpayers, with only around three percent of eligible filers utilizing the program each year.49 This failure falls on the shoulders of the private companies who formed the Free File Program alliance back in 2002. These private tax preparation companies, who feared government encroachment into the industry, had the opportunity to make free filing meaningfully accessible to the seventy percent of Americans who meet eligibility criteria each year. Instead, several of these companies took advantage of taxpayers to promote and up-sell their own commercial products.50

Tax filing is already a complicated and stressful process for many Americans.51 A study surveying about 1,000 taxpayers found the top reason consumers identified as to why they dreaded tax season was because “paying for tax advice and/or filing assistance is expensive.”52

Because private tax preparation companies have failed to provide eligible taxpayers a meaningful avenue to file for free, the government can and should develop its own free tax filing system.  

Currently, a lack of funding and lack of adequate staffing inhibits the IRS’s ability to feasibly create its own filing platform.53 Underfunding of the IRS harms all taxpayers, as it makes tax filing less efficient and hinders the agency’s ability to properly audit tax filings across income brackets.54 The IRS disproportionately audits low-income taxpayers,55 perhaps due in part to the fact that auditing this population is less expensive and less complicated compared to audits of high-net worth individuals and large corporations.

IRS underfunding also impacts the agency’s ability to advertise its services to Americans. The IRS has previously spent up to two million dollars each year to advertise its Free File Program.56 Compared to a company like Inuit (who spent $800 million on advertising in 2019),57 the IRS budget thwarts the agency’s reach. If taxpayers do not know that a free filing program exists, or do not know how to access the program, then of course the program cannot succeed.

With a filing software ran by the IRS, many tax returns could be pre-filled. A study conducted by the National Bureau of Economic Research proposed that between sixty-two and seventy-three million returns could be pre-filled using information that the IRS already has on file.58 Several countries offer free, pre-filled returns to taxpayers.59 To file the return, the taxpayer simply must review the information for accuracy and submit the form. This encourages taxpayers to file returns while eliminating the financial and time burdens associated with traditional filing.

A pilot program in California called “ReadyReturn” tested the concept of pre-prepared filings in 2004, offering 50,000 low-income taxpayers the opportunity to receive and approve a pre-filled return.60 The pilot program received a 98% satisfaction rate from participants.61 Intuit spent over $1.7 million on lobbying in attempts to squash the program.62 Nonetheless, ReadyReturn continued to serve California taxpayers until 2013, when it combined with the state’s Franchise Tax Board in a new software called CalFile.63

The tax preparation industry does not want the IRS to offer its own free filing program. This was true in 2002 when the Free File Program was created, and it remains true today. In 2019, tax industry lobbyists almost succeeded in codifying the Free File Program into law,64 which would have prevented the IRS from ever providing its own free filing software.65 Thankfully, the lobbyists failed, and the IRS maintains the ability to create its own free filing program. But the agency needs proper funding and adequate staffing in order to create a program that is free, accessible, and widely known by American taxpayers.

Although a filing software produced by the IRS would require intensive planning and expenses on the front end, the benefits of such a program would outweigh the costs, making tax season less stressful for taxpayers and for IRS employees.

IV. Conclusion

Tax filing does not have to be complicated or expensive. The government should prioritize adequately funding the IRS to make filing less burdensome for American taxpayers. There are concrete examples as to how this can work in the United States. The IRS Free File Program was created by an alliance of tax preparation companies who feared government encroachment into the filing industry. But should the needs of the multi-billion-dollar tax preparation industry outweigh the needs of the millions of taxpayers mandated to file returns each year?

Emily Schmidt
Emily Schmidt

Emily Schmidt is a rising 3L at the University of Cincinnati College of Law. Prior to law school, Emily received her undergraduate degree in social work from the University of Nebraska at Omaha, and a master’s degree in social work from Brescia University. Emily’s favorite part of Law Review is having the opportunity to write about a variety of legal topics spanning areas such as mental health, legal ethics, houseplants, and consumer finance. Her intellectual curiosity has fueled her love for legal research. She currently serves the UC Law Review as the Blog Chair.

  1. Intuit TurboTax Free Edition TV Commercial Ad 2021, Dance Workout, TV Commercial Ad (Mar. 15, 2021), https://perma.cc/4D96-BKZH.[]
  2. Id.[]
  3. Id. See also 325 Entertainment, Turbotax – Free Free Free! (Radio Ad), YouTube (Feb. 28, 2020), https://perma.cc/RT7H-HBKJ; Zheng Wen, TurboTax Free Edition 2021 Commercial “Auctioneer”, YouTube (Mar. 26, 2021), https://perma.cc/RE7V-PPGP.[]
  4. Complaint ¶ 18, In the Matter of Intuit Inc., FTC Docket No. 9408 (Mar. 28, 2022).[]
  5. See, e.g., Ariana Tobin et al., Here Are Your Stories of Being Tricked Into Paying by TurboTax. You Often Need the Money., ProPublica (Apr. 26, 2019), https://www.propublica.org/article/here-are-your-stories-of-being-tricked-into-paying-by-turbotax-you-often-need-the-money [https://perma.cc/P2NT-6LA7].[]
  6. FTC Sues Intuit for Its Deceptive TurboTax “Free” Filing Campaign, Fed. Trade Comm. (Mar. 29, 2022), https://perma.cc/H7AD-6Y2T.[]
  7. Id.[]
  8. The ‘IRS Free File Program Delivered by TurboTax’ was previously known as ‘TurboTax Free File Program’ in tax year 2018 and known as ‘TurboTax Freedom Edition’ prior to tax year 2018. Intuit simultaneously marketed the same product under the name ‘TurboTax All Free’ between tax years 2016 through 2018. See Complaint ¶¶ 72-77, In the Matter of Intuit Inc., FTC Docket No. 9408 (Mar. 28, 2022).[]
  9. IRS Fact Sheet, IRS Details Free File Initiative; Millions Eligible for Free Online Preparation and E-Filing (Jan. 2003). The members of the Free File Alliance as of January 16, 2003, were: CCH Inc. (Complete Tax); TaxSlayer; H&R Block; Tax$imple; Free 1040 Tax Returns, Inc.; Free Tax Returns.Com, Inc.; #1 Discount Tax Return Service; Efile Tax Returns, Inc.; TaxEnginge.com; Intuit, Inc. (TurboTax); 2nd Story Software, Inc. (TaxACT.com); ezTaxReturn.com; my1040EZ.com, Inc. (FreeTaxUSA); TaxBrain; FileYourTaxes.com; OnLine Taxes, Inc.; and C&S Technologies (eSmartTax). Id.[]
  10. Press Release, E-Filing Agreement Signed Free Electronic Tax Return for 78 Million Taxpayers Begins in January, U.S. Dep’t of the Treasury (Oct. 30, 2002), https://perma.cc/EXK6-59P7.[]
  11. Donald Moynihan, Digital Government, Public-Private Partnerships, and Administrative Burdens: The Free File Program, Georgetown University McCourt School of Public Policy (Mar. 2022).[]
  12. Complaint ¶¶ 78-80, In the Matter of Intuit Inc., FTC Docket No. 9408 (Mar. 28, 2022).[]
  13. Moynihan, supra note 11, at 1.[]
  14. See Justin Elliot & Paul Kiel, Inside TurboTax’s 20-Year Fight to Stop Americans From Filing Their Taxes for Free, ProPublica (Oct. 17, 2019), https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free [https://perma.cc/M3L5-4MB4].[]
  15. Moynihan, supra note 11,at 7.[]
  16. Id.[]
  17. Treasury Inspector General for Tax Administration (TIGTA), Complexity and Insufficient Oversight of the Free File Program Result in Low Taxpayer Participation (Feb. 3, 2020), https://perma.cc/7GRU-TAD2.[]
  18. Moynihan, supra note 11, at 8.[]
  19. Motion to Withdraw Matter from Adjudication ¶ 57, In the Matter of Intuit Inc., FTC Docket No. 9408 (May 4, 2022).[]
  20. See Elliot & Kiel, supra note 14.[]
  21. Moynihan, supra note 11, at 9.[]
  22. TIGTA, supra note 17, at 10; see also Justin Elliott, TurboTax Deliberately Hid Its Free File Page From Search Engines, ProPublica (Apr. 26, 2019), https://www.propublica.org/article/turbotax-deliberately-hides-its-free-file-page-from-search-engines [https://perma.cc/LBT2-UWK7].[]
  23. Motion to Withdraw Matter from Adjudication ¶¶ 53-56, In the Matter of Intuit Inc., FTC Docket No. 9408 (May 4, 2022); see also TIGTA, supra note 17, at 6.[]
  24. TIGTA, supra note 17, at 5; see also Paul Kiel & Justin Elliot, TurboTax and Others Charged at Least 14 Million Americans for Tax Prep That Should Have Been Free, Audit Finds, ProPublica (Feb. 5, 2020), https://www.propublica.org/article/turbotax-and-others-charged-at-least-14-million-americans-for-tax-prep-that-should-have-been-free-audit-finds [https://perma.cc/DW5T-STNF].[]
  25. Motion to Withdraw Matter from Adjudication ¶¶ 33-35, In the Matter of Intuit Inc., FTC Docket No. 9408 (May 4, 2022).[]
  26. See Justin Elliot & Lucas Waldron, Here’s How TurboTax Just Tricked You Into Paying to File Your Taxes (Apr. 22, 2019), https://www.propublica.org/article/turbotax-just-tricked-you-into-paying-to-file-your-taxes [https://perma.cc/7MRJ-4NVP].[]
  27. Intuit Blog Team, Accelerating Technology Innovation to Better Help Consumers Solve Their Most Pressing Financial Problems (July 15, 2021), https://perma.cc/STB2-KKJJ; see also Carmen Reinicke, Intuit Will No Longer Be a Part of an IRS Program That Helps Millions of Americans File Taxes for Free, CNBC (July 16, 2021), https://perma.cc/TTF4-2ZC8.[]
  28. Intuit Blog Team, supra note 26.[]
  29. Id.[]
  30. Complaint ¶¶ 119-22. In the Matter of Intuit Inc., FTC Docket No. 9408 (Mar. 28, 2022); Motion to Withdraw Matter from Adjudication at 3. In the Matter of Intuit Inc., FTC Docket No. 9408 (May 4, 2022).[]
  31. Complaint ¶¶ 86, 90. In the Matter of Intuit Inc., FTC Docket No. 9408 (Mar. 28, 2022).[]
  32. Id. at 26.[]
  33. Id. at 26-27.[]
  34. Answer and Affirmative Defenses of Respondent Intuit Inc. at 26. In the Matter of Intuit Inc., FTC Docket No. 9408 (Apr. 14, 2022).[]
  35. Notice of Denial of Preliminary Injunction at 1. In the Matter of Intuit Inc., FTC Docket No. 9408 (Apr. 26, 2022).[]
  36. Id. Exhibit A at 2.[]
  37. Id.[]
  38. Id.[]
  39. Motion to Withdraw Matter from Adjudication at 1. In the Matter of Intuit Inc., FTC Docket No. 9408 (May 4, 2022).[]
  40. Id. at 5.[]
  41. The agreement defined “covered consumer” as “any individual, or individuals if a joint return was filed, who in Tax Years 2016, 2017, or 2018 was (1) eligible to use an Intuit IRS Free File Product; (2) began his or her tax returns using a TurboTax Free Edition Product; (3) was informed that he or she was ineligible to use a TurboTax Free Edition Product; (4) subsequently paid to use a TurboTax Paid Product, and (5) had not used the Intuit IRS Free File Product in a previous tax year.” Id. at 18.[]
  42. Id. at 63-64.[]
  43. Press Release, Attorney General James Secures $141 Million for Millions of Americans Deceived by TurboTax, NYS Attorney General (May 4, 2022), https://perma.cc/ZZ5J-LRJL.[]
  44. Id. at 33.[]
  45. Id. at 34. Previously, if a customer began filing using a TurboTax commercial product and realized that they were eligible for the Free Edition, the customer would be forced to restart the entire filing process from scratch when they switched between the two programs.[]
  46. Id. at 42.[]
  47. Id.[]
  48. Intuit’s total revenue for fiscal year 2021 was $9.6 billion. Intuit Reports Strong Full Year Results and Sets Fiscal 2022 Guidance, Intuit (Aug. 24, 2021), https://perma.cc/HB9B-EBMZ. Assuming the company does as well in fiscal year 2022, the $141 million settlement discussed above represents approximately 0.01% of the company’s annual revenue.[]
  49. Elizabeth Renter, Analysis: Taxpayers Waste Billions on Filing Federal Returns, NerdWallet (Mar. 15, 2022), https://perma.cc/7TLN-H5X8.[]
  50. See Dennis J. Ventry Jr., The Failed Free File Program Should Be Reformed, Not Codified, 160 Tax Notes 317 (2018).[]
  51. See Michelle Singletary, Tax Season is Hell. We Should All Be Able to E-File for Free, The Washington Post (Apr. 20, 2022), https://perma.cc/2NQX-TESE.[]
  52. Erika Giovanetti, Most Americans Dread Doing Their Taxes, But 4 in 10 Rely on Refunds, LendingTree (Feb. 25, 2020), https://perma.cc/MX7Q-X899.[]
  53. Jean Ross, Budget Cuts Are To Blame for Tax-Filing Season Challenges, Ctr. for American Progress (Mar. 1, 2022), https://perma.cc/6XG4-M94Q.[]
  54. Id.[]
  55. Transactional Records Access Clearinghouse at Syracuse University, IRS Audits Poorest Families at Five Times the Rate for Everyone Else (Mar. 8, 2022), https://perma.cc/KJ6Q-D56P.[]
  56. Elliott & Kiel, supra note 14.[]
  57. Id.[]
  58. Lucas Goodman et al., Working Paper 30008, Automatic Tax Filing: Simulating a Pre-Populated Form 1040, Nat. Bureau of Econ. Research (Apr. 2022).[]
  59. See Organisation for Economic Co-Operation and Development, Using Third Party Information Reports to Assist Taxpayers Meet their Return Filing Obligations—Country Experiences with the Use of Pre-Populated Personal Tax Returns (Mar. 2006).[]
  60. Alex Mayyasi, The Stanford Professor Who Fought the Tax Lobby, Priceonomics (Mar. 22, 2017), https://perma.cc/DRN8-JQQS.[]
  61. Id.[]
  62. Anthony York, Turbo Tax Maker Intuit, Again, Is Mired in Political Turmoil, Capitol Weekly (Sept. 24, 2009), https://perma.cc/S6EV-E623.[]
  63. Tax Policy Center, Briefing Book: How Could We Improve the Federal Tax System?, https://perma.cc/G8UZ-N4QV (last visited May 29, 2022).[]
  64. Kelly Phillips Erb, Congress Dodges Free File Questions, Passes IRS Reform Bill, Forbes (June 13, 2019), https://perma.cc/79M8-SWBP.[]
  65. Bob Bryan & Joe Perticone, The House Passed a Bill That Could Bar the IRS from Creating a ‘Free’ Tax-Preparation Software like TurboTax—Here’s What It Means For You, Business Insider (Apr. 10, 2019), https://perma.cc/4TNU-VXU3.[]