Lawsuits filed in California on May 6 allege that two of the nation's largest tax preparation companies defrauded low-income filers by using deceptive and misleading practices. The companies supposedly made it difficult for taxpayers to access the Internal Revenue Service's Free File program. In the lawsuits, the Los Angeles City Attorney accuses H&R Block and Inuit of violating California's unfair competition law. The litigation asks for injunctions to put an end to the alleged deceptive practices and seeks restitution for filers who paid for tax preparation services even though they qualified for the Free File program.
Free File is a program created by the IRS in partnership with online tax preparation companies that allows individuals with an annual income of $66,000 or less to complete and submit their tax returns for free. According to the lawsuits, H&R Block and Inuit made finding information about their free options extremely difficult and instead tried to upsell low-income filers with costly services.
Inuit is accused of coding its website to prevent its Freedom Edition from appearing in search results while promoting its Free Edition vigorously. They are accused of doing this to sell additional services as the Free Edition contains far fewer features than the Freedom Edition. H&R Block is also accused of designing its website to be confusing to filers looking for free options available under the IRS program.
While the legal fees and damages awarded in lawsuits like these can be high, the damage done to business reputations is often far more costly in the long run. Attorneys with business litigation experience could help companies to maximize opportunities while remaining in compliance with federal, state and local consumer protection laws. Legal counsel could also seek to settle lawsuits quickly to mitigate harm to reputations.