L.A. sues H&R Block, TurboTax maker, alleging misconduct

May 7 (UPI) -- Los Angeles City Attorney Mike Feuer detailed suits Tuesday against tax-prep giants H&R Block and Turbo Tax, alleging the firms defrauded low-income clients into paying for services they should've gotten for free.

The lawsuits were filed Monday against H&R Block and Intuit, the maker of Turbo Tax.

"We allege that they have purposely misled low-income taxpayers into spending their hard-earned money needlessly for services they're entitled to get for free from those very companies," Feuer said at a news conference Tuesday. "These companies have intentionally taken advantage of low-income taxpayers they have pledged to help."

Feuer said the for-profit companies have been fearful for years that the Internal Revenue Service would create a free online tax-prep service.

In 2002, tax-prep companies struck a deal with the IRS to allow the companies to create the "Free File" service instead. The firms are required to provide free services to anyone with an adjusted gross income of $66,000 or less.

The IRS said it was investigating the claims, NBC News reported.

Only 2.5 percent of eligible Americans in the 2017-18 tax year took advantage of companies' free tax-preparation services, Feuer said. Since 2002, only 3 percent have used them.

"That means that 97 percent of eligible taxpayers haven't taken advantage of that service, and we allege in lawsuits that we just filed yesterday that this is no accident," Feuer said. "We are bringing these lawsuits to stand up for consumers, as we stood up for workers, as we stand up for low-income people, for vulnerable populations, we're standing up for people who need us as public lawyers to vindicate their rights."

Feuer said that plaintiffs are asking for three things. First, to permanently stop the alleged practices of misconduct. Second, restitution to low-income taxpayers in California who have needlessly spent money, and third, penalties to hold the companies accountable and deter future misconduct.

The restitution would only go to customers who'd needlessly used the service in the past four years, he added. The number of customers and amount of restitution has not been determined.

The main websites for both companies prominently advertise a free service, but it's misleading, he said.

"The ostensibly free services that these companies offer online we've alleged they're just decoys. They're decoys designed to draw these customers into paying for services instead," Feur said.

Intuit said in a statement that it stands behind its actions.

"We are committed to offering Americans the ability to file their taxes for free, and we're committed to the IRS Free File program. More people have filed their taxes for absolutely free with TurboTax than all other tax prep software companies combined."

H&R Block said its use of Free File grew 8 percent this tax season.