Tax credits to Intuit better spent to fund a free alternative to TurboTax, Warren says

Intuit Inc. is being questioned by U.S. lawmakers who say federal tax credits the company received could have been better spent to build a free government alternative to its popular online tax preparation software, TurboTax. 

"For years, Intuit's corporate lobbyists have argued that the federal government should not set up a program for Americans to file their taxes online and for free because it would be too costly for taxpayers," the lawmakers, including Senators Elizabeth Warren and Bernie Sanders, wrote in a letter to the company. "Your company's disclosure reveals that Intuit's research tax break from 2022 alone could have been enough to fund a year of a free e-File program for millions of Americans."

The lawmakers asked Intuit to provide details on its research expenses dating to 2018. Warren, a Massachusetts Democrat, and Sanders, an Independent from Vermont, were joined on the letter by Senator Richard Blumenthal, a Connecticut Democrat, and Representative Katie Porter, a Democrat from California.

Tiffany Hagler-Geard/Bloomberg

The Internal Revenue Service, in a report to Congress last year, estimated it would cost $64 million to $249 million annually for the agency to run a free-filing program.  With funding from President Joe Biden's Inflation Reduction Act, the IRS plans to launch a pilot free electronic filing program for the 2024 tax season.

The plan "will cost taxpayers billions of dollars for something already free of charge and with potentially disastrous effects on the finances of millions of Americans," said Intuit spokesperson Rick Heineman. He pointed at an IRS auditor report that said it couldn't evaluate whether the estimated costs associated with the government-run program were reasonable.

Intuit has long lobbied against a free government-run tax filing system that would compete with TurboTax, drawing scrutiny from progressive lawmakers.

In the fiscal year ending in July 2023, Mountain View, California-based Intuit received $106 million in federal research and experimentation credits, which amounted to about 4% of its total R&D expenses, according to a regulatory filing. The credits are universally available to qualifying corporations and not specific to Intuit.

"The purpose of the federal research tax credits is to spur innovation and growth for the economy as a whole, not to subsidize the profits of already dominant companies," the legislators wrote.

Intuit has argued that a government-run program is unnecessary because about a third of its TurboTax users already receive tax services for free. It has also said that the government would not have an incentive to help people find tax-breaks.

In September, a Federal Trade Commission judge ruled that Intuit misled consumers by claiming its TurboTax product was free when most customers needed to pay a fee for the software program. The company separately settled with state regulators in 2022 over similar allegations, agreeing to pay $141 million in fines and change its advertising.