Santa Clara County Attorney James Williams and California Attorney General Rob Bonta announced this month a nationwide settlement of a $141 million lawsuit with Intuit Inc. over the TurboTax online service. Free File of the company.

The settlement, negotiated by a coalition of more than 30 attorneys general, resolves allegations that Intuit steered consumers eligible for free online tax preparation and filing services to the company’s paid products.

Bonta said, “For more than a decade, Intuit used underhanded tricks and deceptive tactics to steer low-income and military taxpayers into paid products, knowing they were qualified for free help.”

Intuit is a Mountain View-based financial software company known for its flagship products: QuickBooks, Mailchimp, Mint, and Credit Karma as well as its TurboTax tax preparation software.

The company was founded in 1983 when businessman Scott Cook hired Stanford computer science student Tom Proulx to design the personal accounting computer software that became Quicken. Today, the company has 14,000 employees in nine countries and generated 2021 revenue of $9.6 billion.

More than 100 million people worldwide use Intuit’s services, according to the company’s website.

The company’s TurboTax online tax preparation and filing service is used by 40 million taxpayers each year in the United States.

Intuit officials were not immediately available to comment on the settlement.

The dispute has its roots in a 2002 settlement between the Internal Revenue Service and Intuit and other tax preparation companies. Under this agreement, Intuit would provide free tax filing services to low-income taxpayers and, in return, the IRS would not provide tax preparation and electronic filing services itself.

In fulfillment of this commitment, Intuit’s “Freedom Edition” has provided free tax preparation and filing for active duty military personnel and those below certain income levels.

However, Intuit later added another service, this one called “Free Edition”, which was free in theory but not in practice.

The new service was free only for “simple returns”, a concept defined by Intuit to exclude any minor deviation from the standard return, no matter how common. According to the state attorney general, “a large portion of taxpayers who begin the filing process using the free edition are told later in the process, after spending hours filling out their information, that they must pay $59.99, and in some cases more than $200, as their returns are not considered “straightforward”.

The state’s attorney general said that “the investigation of these products revealed that Intuit was diverting users from its IRS Free File product to its commercial ‘free’ product using deceptive techniques.”

Lawsuits challenging Intuit’s conduct were filed in 2019 by Santa Clara County attorney Williams and the city of Los Angeles. The lawsuits were ultimately jointly administered by the Los Angeles County Superior Court.

The lawsuits alleged, among other things, that the company violated California laws prohibiting false advertising and unfair and deceptive marketing practices. A statement following the filing of the Santa Clara lawsuit said, “Intuit intentionally and deceptively directed taxpayers toward TurboTax and away from free alternatives, promising consumers they could file their taxes using TurboTax “for $0” or “free free free. But the promises of free deposit was a sham to most people.”

The settlement agreement provides for a payment of $141 million to a fund to provide redress to individual consumers. In addition, the settlement prohibits Intuit and its affiliates from violating California’s unfair competition law and prohibits the company from making false representations to consumers, such as, for example, that the consumer must use TurboTax paid services. to obtain a tax credit or tax deduction.

Intuit must also affirmatively disclose eligibility for free services in its advertising materials.

According to the settlement agreement, 371,403 California consumers are “covered consumers,” a term used to describe consumers who were eligible for free tax services in 2016, 2017, or 2018, who started using Free Edition but were told that they weren’t eligible, and then used a paid TurboTax product.

California has 8.3% of all customers covered, a higher percentage than any state other than Texas.

California is expected to receive $11.4 million from the settlement to be used for restitution.

The settlement agreement is subject to court approval.

One provision states that Intuit does not admit “any liability for alleged violations that occurred prior to the entry of this judgment.”

Although the settlement, if approved, will resolve the claims of the Attorney General’s Coalition, it will not resolve all legal issues related to Intuit’s Free Edition software.

According to attorney Benjamin Whiting of Keller Lenkner LLC of Chicago, the company represents tens of thousands of consumers who have initiated arbitration proceedings against Intuit seeking damages for paying for “free” services. Additionally, on March 28, the Federal Trade Commission filed suit in the United States District Court for the Northern District of California challenging the company’s marketing practices.