On Eve of Tax Season, Two Heavyweights Trade Punches

A federal lawsuit filed this week in San Francisco pits two leading tax preparation firms in a war over, among other things, the question of which firm offers tax preparation services to taxpayers more cheaply.

The firms -- Intuit Inc. of Mountain View and H&R Block Inc. of Kansas City -- are both heavyweights in the tax preparation business.

Intuit is a financial software company based in Mountain View known for its flagship products: QuickBooks, Mailchimp, Mint and Credit Karma, as well as its tax preparation software TurboTax.

The company was founded in 1983 when businessman Scott Cook hired Stanford computer science student Tom Proulx to design the computer-based personal accounting software that became Quicken. Today the company has about 14,000 employees in nine countries and in 2023 generated $11 billion in revenue. According to Elizabeth Berger, Intuit's director of customer and business strategy, 45 million returns were filed last year using TurboTax's tax-preparation products.

H&R Block was organized in 1955 and is headquartered in Kansas City, Missouri. The company provides global tax preparation services and financial products. According to its financial documents, H&R Block prepared 20 million tax returns and generated revenues of $3.5 billion in the 2023 fiscal year.

Intuit makes three main claims against its rival. First, it alleges H&R Block falsely says that its AI assistance is cheaper than that offered by TurboTax ($35 vs. $89). Second, that H&R Block's paid do-it-yourself products are not less expensive than TurboTax's live assisted product as H&R Block contends. Lastly, that H&R Block is wrong that TurboTax's full-service product starts at $169; it actually starts at $89.

Intuit alleges that H&R Block's claims are false and violate California's fair advertising law as well as the federal Lanham Act that governs trademarks. Intuit asks the court to temporarily, preliminary, and permanently enjoin H&R Block from using false or misleading statements concerning TurboTax products. Intuit also asks that it be awarded monetary damages.

In support of its demand for immediate relief in the form or a temporary and/or preliminary injunction, Intuit says H&R Block's false statements are made at a particularly sensitive time because the annual tax season lasts about three months from January to April 15.

Intuit says, “At this moment, just weeks before the IRS begins accepting tax returns, tens of millions of taxpayers are researching their tax-filing options and deciding which product they will use, and many have already submitted their returns to a tax preparer for filing.”

Intuit's complaint says that it tried to resolve the matter without litigation by issuing a cease and desist letter to H&R Block on Jan. 6 and subsequently speaking with the company's law firm. According to the complaint, on Jan. 9, H&R Block's lawyers "sent a letter responding on behalf of H&R Block, refusing to remove the false and misleading marketing claims."

Intuit claims H&R Block then “doubled down” on the false and misleading marketing.

Intuit alleges that its competitor's false statements will dupe taxpayers into “into buying a product they are led to believe is a better deal, but is not.”

Intuit's filings include a 31-page expert report prepared by Joel Steckel, a marketing professor at the Stern School of Business at New York University.

Steckel's report says that he charges $1,250 per hour for his time. He analyzes H&R Block's advertisements that purport to compare pricing, concludes that they don't compare apples-to-apples, and gives his opinion that a fair comparison would show that Intuit's services are cheaper or the same price as H&R Block's. He also concludes that the false or inaccurate price comparisons are likely to mislead consumers, in part because consumers tend to believe it is illegal to do so.

A central component of Intuit's argument is that H&R Block's statements are “undermining the stellar reputation that Intuit has worked hard for years to foster with consumers.”

The filing includes a declaration from Berger who says the “TurboTax brand has built an enduring positive reputation in the market and that over the years Intuit has accumulated significant consumer good will.”

She adds, “Intuit has expended considerable effort over the course of many years to communicate and prove to customers that it offers high-quality tax-preparation products for a good value. And customers have come to find that to be true.”

There is some irony in Intuit's instituting litigation over false and deceptive advertising claims.

While the complaint and the Berger declaration tout Intuit's and TurboTax's reputation and consumer goodwill, they do not mention the 2022 settlement of a case then pending in Los Angeles County Superior Court that alleged that Intuit steered consumers eligible for free online tax preparation and filing services into the company's paid products.

According to a statement at the time of the settlement, California Attorney General Rob Bonta said, "”For more than a decade, Intuit used underhanded tricks and deceptive tactics to steer low-income and military taxpayers into paid products despite knowing that they qualified for free help.”

Under the settlement, Intuit agreed to pay $141 million to settle with a nationwide coalition of state attorneys general. The settlement also enjoined Intuit and its affiliates from violations of California's Unfair Competition Law and prohibited the company from making false representations to consumers such as, for example, that the consumer must use TurboTax paid services to obtain a tax credit or tax deduction.

The settlement stated that Intuit does not admit “any liability regarding allegations of violations that occurred prior to entry of this judgment.

The Federal Trade Commission brought an administrative claim against Intuit in 2022, challenging Intuit's advertising of free services. After a hearing, the administrative law judge found the challenged ads were deceptive and that a cease-and-desist order was appropriate. Intuit appealed that determination and the matter is pending before the full commission.

A request to Intuit about whether the prior California litigation and settlement will have bearing on this case was not answered. However, a company spokesperson stated, “H&R Block's misleading advertising uses inaccurate information to deceive American taxpayers. Intuit is pursuing this matter to ensure consumers have access to accurate information when making their tax and financial decisions.”

No hearing on the request for a temporary and or preliminary injunction has been scheduled, but Intuit's lawyers have requested an expedited schedule with a hearing Jan. 18.

Intuit's court filing reports that H&R Block “declined to stipulate to that schedule or agree to any other schedule that would permit Intuit's motion to be heard by the Court this week.”

Joe Dworetzky is a reporter with CalMatters.

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