Ethics Case Controversy
The American tax system is a Byzantine labyrinth of tax codes and forms. Many Americans look for ways to get through the tax-filing season without having to deal with all the stress the IRS enjoys saddling them with; preferably for free. Intuit’s TurboTax marketed itself as one such company. In most advertisements for TurboTax, the ads made it very explicit that filing your taxes with TurboTax would be free and easy. However, while there are some circumstances where you can file your taxes with them for free, most American citizens do not meet these requirements and would need to pay a fee to Intuit for their services. This practice has allegedly been going on for years, with a lawsuit from Santa Clara County in California dating back to September of 2019 claiming that TurboTax had been tricking customers into doing their tax forms on the website, only to make them upgrade to the “correct” version to finish filing. As Santa Clara County Counsel James William said in an email, “Through predatory and deceptive actions, Intuit has made hundreds of millions of dollars in unfair profits on the backs of California taxpayers” (Gibson & Ivanova, 2019). The company would trick the taxpayer into spending time and effort filing their taxes with TurboTax, only to pull the rug out from under them at the last minute.
However, as recently as March of this year, a far more imposing entity has taken issue with Intuit’s false advertising: The Federal Trade Commission. With TurboTax’s actions affecting the taxpayers, the government was bound to step in at some point to try to protect its source of revenue. In the last few days of March of this year, the FTC decided to take a shot at TurboTax as several others had in the past.
The Federal Trade Commission was established on September 26th, 1914, just a few months after the beginning of the First World War. Its jobs were mainly to prevent monopolizations through trusts and to protect consumers. In order to protect consumers, the FTC among other things went after cases of fraud and false advertisements.
The major claim made by the FTC was the heavy usage of the phrase “Free Guaranteed,” alongside many instances of simply the word “free.” One example referenced in the official FTC complaint filing against Intuit was a TurboTax ad titled “Auctioneer,” in which of the 95 spoken words in the commercial (Not counting single-letter words such as “a”), 40 of those words are the word “free,” meaning 42% of the script in the advertisement was simply the word “free” (Wamsley, 2022), (Official lawsuit filing). Under such circumstances, it would be easy to understand why most people used TurboTax with the idea that they wouldn’t have to pay anything to get help filing their taxes.
In the lawsuit filing, the FTC also mentions the reporting done by the news site ProPublica. The publication had been following the lawsuits filed against TurboTax for a while at that point, and one report released on June 18th, 2018, detailed how a shocking minority of only 3% of eligible consumers utilized the IRS Free File Program and attributed this to the misleading names given to TurboTax’s free tax forms (ProPublica, 2020), (Official lawsuit filing).
Another reason the FTC gives for why customers are unable to use TurboTax’s free filing is due to the numerous roadblocks that make it impossible for most people to qualify for TurboTax’s free services, such as those who fill out a work form 1099, and those who have a farm as a revenue source.
The FTC has filed an order in the northern district court of California for TurboTax to immediately cease its actions, with the director of the Bureau of Consumer Protection stating, “We are asking a court to immediately halt this bait-and-switch and to protect taxpayers at the peak of filing season” (Federal Trade Commission, 2022). However, despite this, TurboTax’s misleading advertisements have been shown all over America, and the FTC will be taking TurboTax to the federal courts as soon as they can.
However, despite the FTC’s claims, Intuit remains steadfast in its position that they have done nothing wrong. “Intuit is committed to offering free tax preparation services as demonstrated by more people filing their taxes for free with TurboTax than all other tax prep software companies combined. When Intuit has an opportunity to respond to these allegations in court, it will be shown that Intuit has at all times been clear and fair with its customers” (Gibson & Ivanova, 2019). In a statement made to ProPublica, the news site claims that the spokesperson added “not only did [it] not hide free filing options from consumers, Intuit helped drive the adoption of free tax prep by helping more people file their taxes free of charge than all other online tax prep providers combined” (ProPublica, 2022).
Intuit, being an intermediary between US citizens and the US government, has many stakeholders. Firstly, the US citizens themselves. American citizens are required to file taxes— there's no legal way to avoid them. Many of them use TurboTax because they believed it would be a free way to receive help in dealing with taxes. Instead, most of them are required to pay TurboTax at the end of their filings.
Next, are the stockholders of TurboTax’s parent company, Intuit. If the FTC succeeds in its lawsuit against TurboTax and by extension Intuit, the company’s value will without a doubt drop, and that will mean the company’s stock prices will plummet. Stockholders will lose a lot of money and may be forced to sell their stocks, which will drive stock prices down even further.
The Federal Trade Commission also has a stake in this case, as they are the main party against TurboTax listed in the lawsuit. They’ll be the ones arguing as the plaintiff of the case against Intuit, and will be spending a large amount of money on lawyers and their staff to fund their side of the case.
Although it’s the FTC’s job to deal with cases such as this, the entire US government has a stake in this case. The US government is seen as the main protector of the people in these kinds of situations, so if the lawsuit ends in Intuit’s favor, many people will feel like the government has failed at its job.
Finally, the last group of stakeholders, in this case, are other tax-filing websites, who would benefit from TurboTax being punished, as it would give those other tax filing websites a boost in popularity from people who would stop using TurboTax should Intuit lose the case. Those rival companies include names such as H&R Block, ADP RUN, and Symmetry. In fact, in May of 2019, due to previous legal troubles involving Intuit, rival H&R Block announced to CBS that “consumers’ use of H&R Block’s Free File program grew eight percent this tax season, exceeding the Free File program growth of 6 percent” (Gibson & Ivanova, 2019).
Through the eyes of an individualist, they would view Intuit's actions as unethical, due to their use of false advertisements to promote their business. While Intuit’s actions did increase profit and make its company one of the most recognized tax-filing brands in America, it did so through deceptive marketing, which brought it into conflict with the FTC. Friedman, an economist, and individualist states: “The only goal of business is to profit, so the only obligation that the business person has is to maximize profit for the owner or the stockholders within the law of the land” (Salazar). While the main goal of companies under an Individualism ethical theory is to make as much money as possible, it is required to do so legally. The central theme in all of TurboTax’s advertisements is that filing your taxes with TurboTax is free, but never does it make mention that there are circumstances in which your tax filing may not be free, nor that the majority of people who file on TurboTax aren’t qualified to file for free.
Analyzing the controversy Intuit is in, their actions were not ethical from a Utilitarian viewpoint. The actions of Intuit Turbotax failed to maximize the happiness of the general public, and while the increased profits TurboTax saw likely made the company’s management happy; those who were tricked and had to pay money for a service they were led to believe was free were certainly greatly disappointed. The company used short-sighted thinking to maximize profits, going against Utilitarian thinking. However, long term it is costing them millions in lawsuits, which has undoubtedly put the company in a very disheartening position. Their customer’s happiness was taken away when they were faced with the reality of the false promises of “free tax filing,” and had to pay to file their taxes. The tax filers spent a great deal of time filing their taxes, wasting time that could have been used filing with another company who they might have actually filed for free, although some of their happiness could potentially be regained with money they could receive from the lawsuit settlements. The lawyers dealing with the case were likely to be angered by TurboTax’s actions, as they now have to go through the long process of Discovery in the court case; looking through hundreds of thousands of files to find anything the other party in the suit would want access to. The shareholders' happiness was greatly diminished due to the stock prices dropping as fallout from the lawsuits, and Intuit’s tarnished reputation.
Kantianism is the name given to the ethical theory developed by Immanuel Kant. While many other ethical theories of business focus on one thing as the “goal,” such as Utilitarianism's pursuit of achieving the most happiness for the most people, or Individualism’s profit-maximization at all costs short of breaking the law; Kantianism’s “greatest good” is much more complex and situational than other philosophies. In Kant’s theory, one of the main aspects is the “Categorical Imperatives,” which are the main methods of rationalizing actions. One of this Categorical Imperative is the “Formula of Humanity,” which involves considering the rationality of all people, and treating them as valuable, even if they cannot be used for your own gain. There are many ways this could be applied, however, the way it can be applied in the context of the Intuit TurboTax lawsuit can be simply explained by Professor Salazar’s explanation in her writing on the topic: “This formulation, like the Formula of Universal Law, eliminates lying and deceit of any kind. Furthermore, it eliminates using ourselves without the consent of our rationality and it prohibits our use of other people without the consent of their rationality” (Salazar).
The lawsuit filed by the FTC accuses TurboTax of false advertisements, which would fall under this category of “deceit.” So, is it true that TurboTax has acted deceitfully? Well, as mentioned previously, TurboTax’s advertising makes heavy usage of the term “free,” while most of its consumers are unable to receive free tax filings through TurboTax. However, there are some people who can get their taxes filed for free on TurboTax. Does this technology make it true?
TurboTax makes little if any indication that there are circumstances where taxpayers would either not be qualified to pay for filing their taxes or otherwise would be shown an option to file taxes that they would have to pay to use. All of TurboTax’s ads say “free,” not “Potentially free.” It’s clear that TurboTax is deceiving customers who use their website, and in doing so violate the Formula of Humanity.
In response to the FTC’s lawsuit, Intuit defended itself by writing a blog post responding to criticism leveled against it, mostly by listing the number of people who have used the program. For instance, one accusation it claimed was a “myth” as “Free isn’t really free with TurboTax,” to which the company stated that the “fact” was “last season approximately 13 million taxpayers filed their taxes with TurboTax products and paid absolutely nothing, including more than 11 million who filed with TurboTax Free Edition and nearly 1.2 million who filed with TurboTax IRS Free File” (Team et al., 2021). Instead of explaining its actions and decision-making process, Intuit merely cites the number of users who did not have to pay for its services. This makes it seem like the company doesn’t care that there are seemingly tens of thousands who fell through the cracks; to whom “free” wasn’t really “free” with TurboTax.
To view the actions of TurboTax through virtue theory, the rationality of the company’s actions must be considered. Virtue Theory is based on Aristotle’s Theory of ethics, in which he believed that happiness is having lived a flourishing life, not through pleasure like under Utilitarianism. To live a flourishing life, he explains, means to fulfill one’s functions well. Aristotle describes humanity’s defining characteristic as being rational animals. Thus, to fulfill our function as human beings, we have to exercise our rationality. One of the ways to exercise this rationality is to work together with others, and there are four cardinal virtues of character that make that easy. Those virtues of character in business consist of courage, honesty, temperance, and justice. Intuit TurboTax’s actions violated three of those four virtues: honesty, justice, and courage.
Honesty: The controversy surrounding TurboTax is its advertisements claiming that filing your taxes with TurboTax was totally free. In reality, only people in very specific circumstances who file the right kinds of forms are able to file for free. Aside from this, TurboTax offered multiple filing programs with similar names that confused many users, and further diminished the number of people who were able to file their taxes for free. The company lied to its consumers in order to profit; betraying the virtue of Honesty.
Justice: Due to the actions taken by Intuit, the company has landed itself in legal trouble. The marketing of TurboTax as a completely free tax filing website brought many people to the company, and thus a large amount of revenue. However, this lie violates the FTC’s guidelines against False Advertisements and fraud. This infraction against the legal code of the United States is a clear betrayal of the virtue of Justice, as the company did not engage in fair practices against its competitors, who (to our knowledge) have remained within legality and been fair in their practices.
Courage: When faced with accusations that the company wasn’t living up to its goal of providing everyone with free tax filings, rather than admit and try to rectify this, the company instead released statements saying that the company had, in fact, done no wrong. The company did not want to stand up for what was right, which would have been to provide free tax filings to everyone. Intuit decided to be cowardly, and fight against the criticism leveled against it instead of admitting to its failure and vowing to try harder.
Temperance: Intuit did in some ways act temperate. Intuit did not seem to be too unreasonable in its desires and expectations, though it also wasn’t exceptional in either category. The company seemed rather content to stay as it was, instead of trying to expand or grow too fast. It’s possible that Intuit believed that by remaining more temperate, it would be able to stay unseen by the government and avoid investigation; a plan that would ultimately fail.
The current issue facing Intuit TurboTax is that despite the constant claims that the company provides people with free tax filings, the truth is that only a small number of people actually qualify for those free tax filings. To rectify this, TurboTax will have to undergo changes to regain consumer trust and goodwill. The company will need a new mission statement, which will be to “Build the best E-filer, providing an easy and efficient process.” This will help TurboTax consumers know that TurboTax intends to improve itself and make things easier for the taxpayers. TurboTax will adopt core values of honesty, trust, fairness, and communication. This will show Turbotax is in a new place and trying to regain the trust of their previous consumers, whom they have wronged.
To ensure that the issues facing TurboTax now don’t happen again in the future, a restructuring of upper management positions, such as Chief Executive Officer and Chief Financial Officer, will be implemented, so that people will see that the company will not tolerate its higher-ups breaking the law and lying to consumers.
On the TurboTax website, it will be made clear that anybody with an annual income of less than $66,000 who files their taxes with the company will be able to do so for free, no matter what forms they fill out or where they receive their income from. Anyone with an annual income of over $66,000 will have to pay, however, both will be offered the bundle package, with discounts on all Intuit-owned products and services.
The company will probably want to innovate itself by firing a handful of employees that do not meet the productivity quota. While hiring new employees, TurboTax will look for reliable characters as well as quick and efficient workers to improve the company. This includes creativity in the advertising department to flourish their negative controversy. The recruitment of these new employees will help promote structure in its new growing operations. First, there will be a public apology.
TurboTax will likely have to cut back heavily on the “free” marketing slogan. In new commercials, Turbotax being free for people with under $66,000 in annual income will be the message the commercials send, NOT that everyone files taxes for free. The commercials will also talk about the bundling service plan for Intuit products.
The current standing of the company has led to many lawsuits, and could eventually lead to bankruptcy from legal fees and lawsuit settlements. This isn’t an issue of profits, it’s an issue of being able to continue as a company. Right now, the company is essentially engaged in fraud by falsely advertising the company’s tax filing program is free for everyone, when it is in fact, not free. The solution to this would be to create a discount bundle program: if you file with TurboTax, you get a discount on the prices of other products and services owned by Intuit, such as Quickbooks, mint, and credit karma, and Mailchimp. This will keep consumers active on TurboTax, while also promoting other Intuit services through subscriptions.
*During the creation of this paper, the TurboTax lawsuits were settled.
TurboTax advertising their e-file as "free guaranteed"
Authors: Christopher Bousquet, Tyler Kelly, Ian Graiff, Jason Yang
Gibson, K., & Ivanova, I. (2019, September 7). Intuit faces new lawsuit alleging it duped low-income taxpayers to pay for free tax prep. CBS News. https://www.cbsnews.com/news/intuit-lawsuit-turbotax-maker-faces-new-suit-forallegedly-deceiving-low-income-taxpayers-to-pay-for-free-tax-prep/
ProPublica. (2022, February 24). TurboTax Maker Intuit Faces Tens of Millions in Fees in a Groundbreaking Legal Battle Over Consumer Fraud. https://www.propublica.org/article/turbotax-maker-intuit-faces-tens-of-millions-in-feesin-a-groundbreaking-legal-battle-over-consumer-fraud
Wamsley, L. (2022, March 29). Federal Trade Commission accuses Intuit of deceptively advertising TurboTax as free. NPR. https://www.npr.org/2022/03/29/1089490958/freeturbotax-ftc-intuit
ProPublica. (2020, March 2). Why Are Millions Paying Online Tax Preparation Fees When They Don’t Need To? https://www.propublica.org/article/free-file-online-tax-preparation-feesintuit-turbotax-h-r-block
Federal Trade Commission. (2022, March 30). FTC Sues Intuit for Its Deceptive TurboTax “free” Filing Campaign. https://www.ftc.gov/news-events/news/pressreleases/2022/03/ftc-sues-intuit-its-deceptive-turbotax-free-filing-campaign
Official FTC Court Filing https://s3.documentcloud.org/documents/21562461/ftc-complaint-against-intuit.pdf
Salazar, H. Kantian Business Ethics. Kodiak. https://kodiak.wne.edu/d2l/le/content/90493/viewContent/1251838/View?ou=90493
Team, I. B., Team, I. B., Castro, D., Abney, K., & Divine, C. (2021, July 22). The Facts About Filing Taxes for Free. Intuit®: Official Blog. https://www.intuit.com/blog/taxpayerempowerment/the-facts-about-filing-taxes-for-free