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The lure of so-called free tax services

Once a year, consumers rely on TurboTax to help them with the drudgery that is income tax preparation. The convenience and automation make an often painful process a bit easier.

Yet, for a company that made $2 billion in 2021, Inuit, the maker of the tax software, could be paying out five figures for consumer fraud. In addition to a mass arbitration lawsuit, the company is also dealing with ongoing investigations from federal regulators and state prosecutors.

Misunderstanding or cover-up?

The class-action lawsuit alleges that customers were led to believe that their tax prep had zero costs via the TurboTax Free Edition, a product developed in partnership with the Internal Revenue Service. After completing the forms, they realized that they would actually have to pay for their filing. Supposedly, the portal to free filing was difficult to find and then subsequently disappeared after Inuit added code to the software only to remove that later.

In total, more than 14 million filers paid for tax services when they qualified for the free option.

Intuit asserts that consumers were required to enter private arbitration if disputes arose, waiving their right to take their grievances into the courtroom. Written in “legalese,” the clause is buried within 15,000 words that compose TurboTax’s terms of service agreement.

More than a year after the lawsuit was filed, TurboTax users agreed to arbitration. A “Sign In” button added to the software would verify that users agreed to the terms of use.

After another year of litigation and an appeal, the U.S. Court of Appeals for the 9th Circuit ruled that the tax software users had agreed to arbitration with a “Sign In” button on the software signifying users agreeing to terms of use. Those terms contained the arbitration clause.

Even in victory, Intuit still paid a high price. Arbitration costs alone could result in more than $175,000 in fees.