The Federal Trade Commission (FTC) filed a complaint against tax preparation company H&R Block, accusing the tax services provider of unfair and deceptive business practices. The allegations include “coercing” customers into paying more than necessary, running deceptive “free filing” ads, and unfair downgrade policies.
“Companies using coercive techniques that harm consumers can expect to hear from the FTC," Samuel Levine, director of the FTC’s Bureau of Consumer Protection said in a release. According to Levine, H&R Block is one such company.
H&R Block designed its products to “present an obstacle course of tedious challenges to consumers, pressuring them into overpaying,” Levine added.
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For its part, H&R Block has denied wrongdoing and in March, filed a lawsuit against the FTC related to the agency's complaint. Here's more of what you need to know about that cause of action and the FTC's original complaint.
H&R Block downgrade policy
According to the FTC, consumers who try to downgrade to a less expensive H&R Block product are unnecessarily forced to spend time and effort contacting customer service. When customers finally succeed with the downgrade, they are penalized by having their data wiped, which forces them to start over.
The FTC complaint states the data-wiping practice “requires consumers to choose between sacrificing their progress” and “switching to a less expensive product.”
For this reason, the FTC contends that some consumers may choose to stick with the more expensive product, even when it’s not needed. Some of these customers are misled into choosing the more expensive product to begin with.
H&R Block free tax filing
Deceptive “file for free” advertisements are also part of the FTC complaint. The agency says H&R Block has been running deceptive ads for years. Although the company made some changes to its advertising last tax season, what the FTC describes as vague statements and hard-to-find information continued to mislead consumers into thinking they could file for free when they didn’t qualify.
According to the complaint, “Only after consumers are partway through preparing their tax returns does H&R Block disclose that many consumers do not qualify to use Free Online, and must upgrade and pay.”
Essentially, some of these taxpayers may choose to upgrade simply because they already spent a significant amount of time and effort preparing their return. However, these consumers might not have chosen H&R Block if they knew they couldn’t file for free in the first place.
H&R Block lawsuit
H&R Block denies the FTC's claims and filed a lawsuit against the agency in mid-March, claiming that using administrative law judges to issue findings for cases violates the U.S. Constitution.
This is not the first time that federal agencies’ use of administrative law judges has been challenged. The U.S. Supreme Court is expected to issue a ruling by the end of June on a similar case involving the use of administrative law judges by the U.S. Securities and Exchange Commission. That ruling could impact the FTC's case against H&R Block — and the use of administrative law judges in other federal agencies.
H&R Block vs. TurboTax
Intuit’s TurboTax is a popular alternative to H&R Block’s online tax preparation products, but both companies have been the focus of FTC complaints. As Kiplinger has reported, a recent FTC order found that TurboTax free filing ads misled customers into thinking they were eligible to file for free. Intuit is appealing the FTC’s findings.
That order followed a $141 million Intuit TurboTax settlement, last year, which stemmed from allegations of consumers paying for products after being tricked into believing they were filing for free.
Free tax filing
TurboTax and H&R Block aren’t the only options for free tax filing. Through IRS Free File, eligible taxpayers can file their federal tax returns free of charge.
- Taxpayers with an adjusted gross income (AGI) of $79,000 or less for 2023 qualify to file using guided tax preparation software with one of the IRS’ partners.
- Free state tax preparation and filing is available to some taxpayers who qualify to file through an IRS partner.
- There is no income limit to use another IRS option, Free Fillable forms. However, no guidance or state preparation is available with that system.
The IRS also recently launched a free Direct File pilot this tax season, which allows eligible taxpayers to file their returns directly with the agency. Direct File has been limited to select taxpayers in 12 states, but the IRS is starting to expand access to the program.
Note: This article has been updated to include information about H&R Block's lawsuit against the FTC.
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