On September 8, the Federal Trade Commission’s (FTC) Chief Administrative Law Judge D. Michael Chappell issued an initial decision ruling that Intuit Inc. (Intuit) “engaged in deceptive advertising in violation of Section 5 of the FTC Act” by misleading consumers with its “free” service claims. In the decision, which is subject to appeal to the full commission, Judge Chappell found that Intuit deceptively marketed TurboTax, its online tax preparation filing software, “when it ran ads for ‘free’ tax products and services for which many consumers were ineligible.”
The decision highlights evidence that the majority of tax filers could not avail themselves of the company’s “free” service. This is due to its unavailability to those without a “simple tax return” such as a Form 1040. Individuals who received a 1099 form, for example independent contractors, gig workers, or small business owners, were not eligible to use the free edition of TurboTax. Consequently, in 2020, approximately two-thirds of tax filers were unable to use the free product. Despite the ineligibility, Intuit’s ads repeatedly claimed that consumers could file their taxes for free. One such example is a 30-second radio advertisement in which the word “free” is the only word sung, repeated approximately 32 times.
The order accompanying the ruling prohibits Inuit from engaging in the alleged deceptive practices. Specifically, it restricts Intuit from representing any good or service as free, unless:
- The good or service is genuinely free for all consumers; or
- Intuit clearly and conspicuously discloses all terms, conditions, and obligations that might limit the offer and potentially confuse consumers; and
- The fact is disclosed in a clear and conspicuous manner if the good or service is not free “to a majority of U.S. taxpayers.”.
Why It Matters. This decision carries significant implications for businesses, emphasizing the critical need for transparency, honesty, and regulatory compliance in their marketing strategies to avoid similar legal repercussions. In particular, businesses must exercise heightened diligence when using the term “free” in marketing collateral, given the extensive federal and state regulations and the ongoing enforcement actions. The decision comes in the wake of a substantial $141 million multistate settlement that Intuit reached with all 50 states and the District of Columbia in May 2023. This highlights the increasing possibility of companies facing simultaneous investigations and litigation from both state and federal governments.