H&R Block Inc. and Intuit Inc. are being sued by the Los Angeles City Attorney for allegedly undermining the Internal Revenue Service’s Free File program.

Intuit, the maker of TurboTax electronic tax preparation software, was hit with a civil complaint in which City Attorney Mike Feuer seeks injunctive relief, restitution, and civil penalties for alleged violations of the state’s Unfair Competition Law. The lawsuit comes as federal lawmakers debate a bill that would codify the IRS program, which is backed by the tax prep industry.

“Taxpayers should never be misled into needlessly spending their hard-earned money for services to which they’re entitled for free. But that’s what we allege happened here,” Feuer said May 7. “In short, we allege these companies intentionally took advantage of the low-income residents they pledged to help. The unfair and deceptive practices we allege must stop; consumers should receive restitution for fees we allege they never should have paid; and these companies should be held accountable for their alleged misconduct.”

The complaints draw special attention to low-income citizens, saying only a tiny fraction of eligible taxpayers actually benefit from the Free File agreement.

“H&R Block has for years defrauded the lowest earning 70 percent of American taxpayers—who are entitled under a private industry agreement with the IRS to file their taxes online for free using commercial products—by actively undermining public access to the IRS’s ‘Free File’ program, while simultaneously employing deceptive and misleading advertising and design schemes intended to induce taxpayers into unnecessarily purchasing expensive H&R Block products,” attorneys for Feuer’s office wrote in one of the two complaints filed May 6.

The complaints seek injunctive relief to stop the companies’ allegedly deceptive practices, as well as restitution for all Californians who in the last four years paid for products when they were eligible for free filing.

Company Responses

The suggestion that Intuit doesn’t support the program is incorrect, the company said.

“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,” a spokesman said in an email May 7.

H&R Block said its use of the Free File program grew this tax season.

“H&R Block is proud to offer 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 spokeswoman Susan Waldron said in a May 7 email. “We are pleased that consumers’ use of H&R Block’s Free File program grew eight percent this tax season, exceeding the Free File program growth of 6 percent.”

‘Free File’ Controversy

The IRS under its Free File program partners with private-sector tax software providers to offer free online tax preparation and electronic filing to individual taxpayers. ProPublica, in a series of recent articles citing internal documents and employee accounts, reported that companies like H&R Block and Intuit were purposefully directing taxpayers to their paid products and away from the free alternatives available under the program.

Lawmakers, including 2020 presidential contender Sen. Elizabeth Warren (D-Mass.) and Senate Finance Committee leaders Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.), have asked the IRS to investigate these claims and and make changes to the Free File program if necessary.

The agency has said it is reviewing the concerns and will take “fast action” to ensure the integrity of the program.

The cases are California v. Intuit Inc., Cal. Super. Ct., No. 19STCV15644, complaint filed 5/6/19 and California v. H&R Block, Inc., Cal. Super. Ct., No. 19STCV15742, complaint filed 5/6/19.