Tax preparation giant H&R Block steered customers toward more expensive online products by “unfairly deleting” their tax data when they tried to downgrade, according to a newly filed complaint by the Federal Trade Commission.
The company’s online tax prep products were designed to “present an obstacle course of tedious challenges to consumers, pressuring them into overpaying for its products,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a February 23 release announcing the complaint.
The complaint wasn’t publicly available at press time, but according to the release and two associated FTC blog posts, H&R Block requires customers who realize they don’t want or need a higher-priced product to first contact the company’s customer service by chat or phone. Then, if the customer still wants to downgrade, H&R Block’s system deletes all the tax prep data that had been entered, effectively requiring them to redo their return.
That creates a “significant disincentive to downgrading,” and it’s the opposite of what takes place with the upgrade process, in which a customer’s data “seamlessly moves to the more expensive product instantly,” the FTC said. No customer service interaction is required to upgrade, the release notes.
“Let’s be clear,” the FTC’s Lesley Fair wrote in one of the blog posts. “The FTC alleges this wasn’t a system glitch. It was an intentional sales tactic to create a disincentive for consumers who wanted a more affordable option.”
Add It to the List
The new complaint also adds H&R Block to the list of tax prep giants that have come under FTC scrutiny for deceptively advertising free return preparation services.
According to the FTC, H&R Block’s marketing of free online tax preparation services in recent years doesn’t clearly communicate — except in fine print — that taxpayers can file for free only if they have a simple return, and the ads give no indication of what constitutes a simple return. Further, H&R Block has often changed its criteria for a simple return in recent years, the release says.
The complaint is the first step in a process that will result in a formal hearing before an administrative law judge. A similar complaint involving TurboTax parent company Intuit Inc. led to an FTC judge concluding last year that Intuit engaged in deceptive advertising. That ruling was upheld in a January 22 FTC opinion, although Intuit has said it plans to appeal the order.
Separately, Intuit reached a $141 million settlement with all 50 states and the District of Columbia in May 2022 over claims that it scammed TurboTax users by directing them to paid services when they thought they were accessing the free tax preparation option provided in partnership with the IRS Free File program. Intuit has since withdrawn from the IRS Free File Alliance.
Dara Redler, H&R Block’s chief legal officer, didn’t directly contest the FTC’s allegations in a statement provided to Tax Notes, saying instead that the company has offered a free filing service for more than 20 years and that it “allows consumers to downgrade to a less-expensive DIY Product via multiple mechanisms while ensuring the preparation of accurate tax returns.”