LA City Attorney Sues Popular Tax Preparation Firms Intuit, H&R Block

LA City Attorney Mike Feuer publicly detailed on Tuesday a civil lawsuit he has filed seeking an injunction and penalties against two large national tax preparation companies for allegedly engaging in "deceptive and manipulative" business practices that cost low-income taxpayers millions in unnecessary upgrades and upsells.

Feuer filed the suits against TurboTax and H&R Block. He alleged in his suits that the two companies have connived for years to discourage millions of taxpayers from taking advantage of a free, simple online system provided by the Internal Revenue Service.

Feuer accuses the firms of actively undermining public access to the IRS' "Free File" program, which allows the lowest-earning 70 percent of taxpayers - those with adjusted gross income of $66,000 or less - to prepare and file their federal and state taxes online for free, using the commercial services.

"In short, we've alleged they have purposely misled low income taxpayers into spending their hard-earned money needlessly for services they are entitled to get for free," Feuer said at a late-morning City Hall news conference.

Representatives with Intuit's TurboTax and H&R Block did not immediately respond to a request to comment.

Feuer compared the tax-preparation firms' behavior to that of Wells Fargo, another of his corporate targets. His 2015 lawsuit against Wells Fargo helped blow up the scandal over the bank's opening of thousands of bogus accounts for customers and others.

"As in the case of Wells Fargo, where consumers had a right to trust their bank, in this case consumers have to be able to trust their tax preparation services," Feuer said. "As in the case of Wells Fargo, there appears to be an instance where corporate profit has been elevated over the best interest of consumers. And as in the case of Wells Fargo there appears to be - we allege - a culture that is promoting this elevation of profit over what's good for taxpayers."

Free File is a full-featured program that serves taxpayers no matter how complicated their taxes. But it's little-used; according to an investigation published last week by ProPublica, on which key element of Feuer's lawsuits are based, only 3 percent of eligible taxpayers use Free File.

That's 3 million of the 100 million taxpayers eligible.

Feuer alleges that Intuit and H&R Block have deliberately concealed Free File from taxpayers and steered them instead to their own "free" programs, which are watered-down versions of software for which Intuit charges as much as $120 and H&R Block as much as $105.

The firm's "free" programs are useful only to taxpayers with wage income from employers. That leaves out independent contractors or those with itemized deductions.