Paul L. Caron

Thursday, May 16, 2019

TurboTax And H&R Block Saw Free Tax Filing As A Threat — And Gutted It

TurboTaxHRBlockProPublica, TurboTax and H&R Block Saw Free Tax Filing as a Threat — and Gutted It:

Despite signing a deal with the IRS that pledged they would help tens of millions of Americans file taxes for free, tax software giants Intuit, the maker of TurboTax, and H&R Block instead deliberately hid the free option and actively steered customers into paid products, according to an internal document and five current and former employees of the companies.

H&R Block explicitly instructs its customer service staff to push people away from its free offering, according to internal guidance obtained by ProPublica.

“Do not send clients to this Web Site unless they are specifically calling about the Free File program,” the guidance states, referring to the site with the company’s free option. “We want to send users to our paid products before the free product, if at all possible.”

Steering customers away from TurboTax’s truly free option is a “purposeful strategy,” said a former midlevel Intuit employee. For people who find TurboTax through a search engine or an online ad, “the landing page would direct you through a product flow that the company wanted to ensure would not make you aware of Free File.”

When the Free File program launched 16 years ago, it was extolled as the best sort of collaboration between government and private enterprise. With little cost to the IRS, the huge companies that dominate online tax preparation would help millions of Americans file their taxes for free. Intuit and the industry have spent millions lobbying to make the Free File program permanent because it contains a noncompete provision that restricts the IRS from creating its own free, online filing system.

But privately, the free filing option is seen for what it is: a threat to the companies’ profits.

ProPublicaSo the companies had to strike a delicate balance: They wanted to preserve their arrangement with the IRS to ward off government competition, but then they also sought to make sure the program didn’t recruit too many customers who actually got something for free.

The companies set out to convert people who qualify for the program into paying customers. Sure enough, use of the Free File program has collapsed. Soon after it was launched in 2003, more than 5 million Americans filed their taxes for free. Now it’s about half as many, according to the latest IRS data.

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