Gather your W-2’s and call your CPAs! Tax season is upon us, and that means one thing for the FTC—another flurry of activity in its ongoing action against Intuit, Inc., one of the largest online tax-filing services. Recently, the FTC issued an order denying complaint counsel’s motion for summary decision in the case, concluding that the matter will proceed to a full evidentiary hearing—the FTC’s administrative version of a trial.
As we previously reported, the FTC initially brought its case against Intuit in March 2022, alleging that the marketing of TurboTax as free was misleading because the free service applies only to those customers filing “simple” tax returns, while the service charges many other customers at the end of the filing process. Two months later, we wrote about the states’ investigation of Intuit, which overlapped with the FTC case, and the resulting $141 million settlement with all 50 states and the District of Columbia. Along with the restitution payment, Intuit was required to cease its “free” advertising campaign as part of the settlement.
In light of the state settlement, Intuit moved in the FTC’s administrative case to withdraw the matter from adjudication, arguing that the state settlement resolved the FTC’s complaint. Complaint counsel did not object, so the action was stayed in May 2022. However, in August 2022, four of the five commissioners (then-commissioner Noah Phillips dissented) ordered that the stay be lifted and the matter returned to adjudication, stating that it had “determined that the public interest warrants further litigation.” The case proceeded accordingly.
Subsequently, complaint counsel moved for summary decision, asserting that “there is no genuine issue for trial” in the matter and the evidence was clear that “Intuit made false representations regarding…whether TurboTax is in fact free.” Specifically, complaint counsel argued that:
- Intuit represented that consumers can file their taxes free of charge by using TurboTax
- That representation is likely to mislead reasonable consumers
- The “free” claims are material
- The disclaimers in the advertising are insufficient to prevent a finding of deception
In denying the motion, the commissioners acknowledged that “at least some of [Intuit’s] ads may be susceptible to summary decision,” but nevertheless concluded that “denying summary decision and remanding for trial will provide a fuller factual record and facilitate a more complete and cohesive opinion that addresses all of the relevant legal and factual issues, and advertising claims at once.”
Despite holding off on issuing a decision on the merits for now, the FTC’s decision indicates that it may ultimately rule, at least in part, against Intuit, going so far as to expressly state that the denial “should not be taken as an indication that the evidence presented is necessarily insufficient and that liability cannot attach unless Complaint Counsel produce additional evidence of deception at trial.” Although refusing to rule that Intuit’s ads were deceptive, the commissioners suggested that most of the advertising claims at issue convey the inaccurate message that consumers can file their taxes free of charge by using TurboTax, contrary to Intuit’s argument that the ads only convey that the Free Edition is free.
The FTC also wrote that Intuit’s disclaimers are inadequate, stating that, “even when looking for the disclaimers, multiple viewings are required to notice and read them,” and that they “are plainly insufficient to affect the net impression of the ads.”
The FTC’s administrative process is currently in the hot seat in the case against Axon Enterprises Inc., which in some ways attacks the fundamental fairness of an administrative proceeding. In Axon, the Supreme Court is currently deciding whether the federal district courts have jurisdiction over constitutional challenges of the FTC’s structure, procedures, and existence, or whether such challenges must first go through the FTC’s administrative process. In the case against Intuit, the denial of summary decision provides a better appearance of fairness and makes the decision more defensible on appeal.
The commissioners voted 4-0 to deny complaint counsel’s motion. The evidentiary hearing (i.e., the trial) is scheduled to start on March 27, 2023.