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L.A. City Attorney Mike Feuer Sues Two Tax Preparation Firms

LOS ANGELES (CNS) - L.A. City Attorney Mike Feuer today publicly detailed 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 of both companies denied any wrongdoing.

“H&R Block is proud to have helped millions of Americans with our four free tax filing options, including the IRS Free File program, our free online product, our MyFreeTaxes partnership with the United Way and our partnership with Military One Source,” H&R Block said in a statement. “We are pleased that consumers' use of H&R Block's Free File program grew 8 percent this tax season, exceeding the Free File program growth of 6 percent.”   

Intuit also responded to the allegations and said any suggestion that the company does not support the IRS Free File Program is “flat wrong. We stand behind our actions as being both appropriate and consistent with our values. More people have filed their taxes for absolutely 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. We look forward to working with the IRS and private industry to improve the Free File program and help it continue to grow.”

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 thebest 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 elements 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.

Feuer said he was seeking restitution for California residents going back four years. If the legal action is successful, individuals will be able to get back what they paid for the non-free service that “wasn't necessary to pay in the first place,” although he said he was not yet sure what the total amount could be.

The lawsuit was filed on behalf of the people of the state of California, which Feuer and three other city attorneys in the state have the authority to do.

This article was updated at 3:00 PM on 5/7/19.

Top Image: Tax | MattMadd/Flickr/Creative Commons

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