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$141 million settlement reached in lawsuit over 'free' TurboTax services

The settlement announced Wednesday will return up to $90 to consumers who were wrongfully charged for tax-filing services from 2016 to 2018.

The $141 million settlement deal between Intuit, the maker of TurboTax tax-filing software, and all 50 state attorneys general means that some 4 million affected taxpayers who were deceived by misleading promises of free tax-filing services will be compensated.

Intuit will pay up to $90 to Americans who paid to file their taxes with TurboTax from 2016 to 2018 when they should have been eligible to do so for free through the IRS's Free File program.

As part of that program, taxpayers who earned less than $34,000 for the 2018 tax year would have qualified for the free service.

Details on how and when the money will be distributed have not yet been released. According to the terms of the settlement, eligible filers will receive notices by email and regular mail with more information.

The settlement was the result of an investigation stemming from a 2019 ProPublic report that alleged Intuit steered lower-income consumers away from tax services that were available for free through federal support and toward commercial products.

That report, titled "Inside TurboTax’s 20-Year Fight to Stop Americans From Filing Their Taxes for Free," said Intuit had come to an agreement with the federal government in which the company agreed to provide free tax filing services for millions of eligible Americans, as long as the IRS did not create its own system for doing so.

But even as it launched its own ostensibly free filing program, Intuit took measures to lure customers into "traps" that caused them to pay, ProPublica's report alleges. The news outlet said it had uncovered internal documents that showed Intuit knew it was misleading customers to assume they would not have to pay for certain services.

"Frequently 'free' didn’t mean free at all," ProPublica reported. "Many who started in TurboTax Free Edition found that if their return required certain commonplace tax forms, they would have to upgrade to a paid edition in order to file."

“There’s a lot of desperation — people will agree, will click, will do anything to file,” one former longtime software developer told ProPublica.

“Intuit cheated millions of low-income Americans out of free tax filing services they were entitled to,” said New York Attorney General Letitia James in a statement. “For years, Intuit misled the most vulnerable among us to make a profit. Today, every state in the nation is holding Intuit accountable for scamming millions of taxpayers, and we’re putting millions of dollars back into the pockets of impacted Americans."

Intuit denied any wrongdoing in a statement coinciding with Wednesday's settlement announcement.

“Intuit is pleased to have reached a resolution with the state attorneys general that will ensure the company can return our focus to providing vital services to American taxpayers today and in the future,” said Kerry McLean, Intuit’s executive vice president and general counsel. “Intuit is clear and fair with its customers, including with the nearly 100 million Americans who filed their taxes free of charge with our products over the last 8 years — more than all other tax prep software companies combined."

Intuit's stock has plunged alongside other big tech names during the first part of 2022. Year-to-date, the company has lost 35 percent of its value, with shares now trading at about $410.