FTC sues H&R Block over issues tied to its online free file option

By Jeanne Sahadi, CNN

New York (CNN) — The Federal Trade Commission last week sued the tax preparation company H&R Block for, in essence, allegedly making it more difficult for consumers to downgrade to a lower cost or free online filing package and for misleading many into believing they qualify for free filing when they don’t.

The consumer protection agency’s complaint alleges that H&R Block makes it unnecessarily time consuming and frustrating for consumers to downgrade to a lower cost tax-preparation option online after initially selecting a higher cost one.

Consumers must first contact customer service and then, if they make the switch to a lower-cost or free-filing package, they must re-enter all the tax data they had put in initially, according to the FTC. By contrast, the agency said, the experience is hassle-free when consumers upgrade to a more expensive option.

“In numerous instances, Respondents have coerced consumers into purchasing more expensive Online Products than they need or want by forcing consumers to choose between paying for an unnecessarily expensive product or losing their previously entered information and starting their tax returns over in a less expensive Online Product,” the complaint says.

In response, the company told CNN that “H&R Block allows consumers to downgrade to a lower priced DIY product via multiple mechanisms while helping to ensure the preparation of accurate tax returns. Customers can work with one of our customer service agents via phone or chat or on their own through our voice virtual assistant. These options have been available for many years.”

It didn’t dispute that a customer’s initially entered data is cleared when a person downgrades to a lower priced product, explaining it this way:

“The forms included in the lower priced products are not as comprehensive and do not support all tax situations, so keeping data upon a downgrade could impact the tax calculation or cause accuracy issues. H&R Block strives to maintain a balance between honoring customers’ decisions to downgrade and facilitating the preparation of accurate tax returns by customers.”

It did not address the FTC assertion that anyone upgrading to a more expensive product does not have to go through the same time-consuming process.

The FTC also alleges H&R Block has engaged in deceptive marketing over the years when advertising its online free-filing option, not making clear who actually qualifies for the option beyond indicating – sometimes in small print – that it’s for those with “simple returns” without defining what H&R Block means by simple return.

“H&R Block deceptively markets its Online Products by representing to consumers that they can file for free using H&R Block, when in fact, many consumers have tax situations that are not covered by H&R Block’s Online Product,” according to the complaint.

In response to the merits of the FTC’s complaint overall, Dara Redler, the company’s chief legal officer, noted in a statement that the company has been committed to making the process of filing taxes “accessible and more transparent for all.”

“We believe we provide our clients with a great deal of value, unmatched tax expertise, and fair and transparent pricing. We are confident in the value our services and offerings provide to our clients who have trusted H&R Block for nearly 70 years,” Redler said.

On its site, H&R Block does link users comparing their options to a list of the 43 federal tax forms this year that may be filed using the free file option; and it also has another listing of state tax forms that qualify, although that list is harder to find.

It’s also not clear from the filing-product comparison page what income thresholds apply to be eligible for free file. H&R Block told CNN “there is no threshold. If someone makes $1 million and only has a W-2 or any of the (other) forms … we have in our free (offering), we will not charge them for tax prep.”

In an interview with CNN Business in mid-February before the FTC complaint was filed, H&R Block CEO Jeff Jones noted that “many millions” of customers file for free with the company and that they comprise “a significant part of our DIY filing base.” The company said 8.6 million clients used its DIY products in 2023.

No date has been set yet for a hearing of the case against the company, which will take place before an administrative judge, an FTC spokesman said.

Earlier this month, the FTC took similar action against Intuit, maker of Turbo Tax tax filing software, “for deceiving consumers with bogus advertisements pitching ‘free’ tax filing that millions of consumers could not use.”

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