Saturday, May 11, 2019

ProPublica Targets Free File Tax Preparers

Lately some politicians and senior IRS officials launched a review of TurboTax's and H&R Block's free file software (link). They were apparently inspired by articles written by ProPublica, such as this:   Here’s How TurboTax Just Tricked You Into Paying to File Your Taxes.

ProPublica claims to be "a nonprofit newsroom that aims to produce investigative journalism in the public interest." The people at ProPublica allege they tried the TurboTax software, entered pretend info, and then were told they could not file for free after all, as described in their article. They wrote the following:

"We started the process by creating the profile of a TaskRabbit house cleaner who took in $29,000. We entered extensive personal information. TurboTax asked us to click through more than a dozen questions and prompts about our finances.
     After all of that, only then did we get the bad news: TurboTax revealed this wasn’t going to be free at all. Turns out the house cleaner didn’t qualify because he is a independent contractor. The charge? $119.99."

Where did they do this? Probably here, or here, where clicking on 'Simple Tax Returns' shows a popup that gives situations not covered in TurboTax Free Edition, including business income, i.e. that of an independent contractor. So they either missed or ignored the caveat. Also, that software is not on the IRS's free file site.

This IRS site (as directed by the Free File Alliance) is the IRS's starting place for filing federal income taxes for $0 online. Clicking on the blue button 'Start Free File Now' does not direct you to a site to start entering data to file, but rather to a page of several free file software offers, including one by TurboTax and another by H&R Block. The TurboTax one says you can file free if you qualify (no guarantee).

So I selected the latter and I did a similar thing myself, pretending to be self-employed with income of $29,000, only not from TaskRabbit. TurboTax did not disqualify my pretend input for being an independent contractor nor say I needed to pay.

ProPublica also wrote the following:

"Then we tried with a second scenario. We went back to and clicked on “FREE Guaranteed.” This time, we went through the process as a Walgreens cashier without health insurance, entering personal information and giving the company lots of sensitive data.
     Again, TurboTax told us we had to pay — this time because there’s an extra form if you don’t have insurance. The charge? $59.99."

Again, where did they do this? Probably here, or here, where clicking on 'Simple Tax Returns' shows a popup that gives situations not covered in TurboTax Free Edition, including things reported on Schedule 4. The so-called  "shared responsibility payment" for not having health insurance goes on Schedule 4. So again the ProPublica people missed or ignored the caveat. Again, that software is not on the IRS's free file site.

Per their description the ProPublica people did not use the IRS's gateway to file free! But I went to the TurboTax site via the IRS gateway. I entered data for a person with a W-2 and no health insurance. The software accepted it, even calculated the so-called  "shared responsibility payment", and did not say I needed to pay to file!

The Los Angeles city attorney filed a lawsuit against H&R Block and TurboTax's maker Intuit, alleging that the companies defrauded low-income taxpayers.

I assume ProPublica would side with the attorney. What principle are they invoking? I allude to the answer with an analogy. A customer is ready to buy something at Kroger. A Kroger employee knows the customer could buy the same thing at Walmart for significantly less. On said principle, the Kroger employee defrauds the customer if he or she doesn't tell the customer about Walmart's price. Arguably on said principle, Kroger defrauds the customer if there is no prominent sign by the product telling about Walmart's lower price.

1. I had never used any version of TurboTax before seeing ProPublica's reporting.
2. The so-called non-profit ProPublica had a $10 million profit (revenues minus expenses, and 35% of revenues) in 2017 and a $6.7 million profit (22% of revenues) in 2018. 😊 In 2017 the two highest paid employees were paid almost $400,000 each (> $400,000 with other compensation). Source: Annual Statements and Form 990.

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