The attorney general for Washington, D.C., has filed a consumer protection lawsuit against Liberty Tax accusing the tax prep chain of deceiving consumers with misleading ads and promotions and predatory pricing.
D.C. Attorney General Karl Racine's office filed the suit Wednesday against Liberty, which is the third biggest tax prep chain in the country. The lawsuit alleged that Liberty aggressively marketed its services to low-income residents in D.C. by offering them $50 in cash "just for filing," but then actually increased the tax prep fee for clients who accepted the cash payments. He accused the tax prep chain of violating D.C.'s consumer protection laws and is asking for a court order requiring Liberty to provide accurate and truthful information, and pay monetary relief to thousands of consumers, along with civil penalties.
"We filed this lawsuit to stop Liberty Tax from illegally preying on D.C.'s most vulnerable low-income residents," Racine said in a statement. "Now is the time for Liberty Tax to be held accountable for persistently and fraudulently tricking D.C. residents into overpaying for tax preparation. Misleading consumers is illegal, and we won't allow businesses to profit by cheating District residents." (Full disclosure: Racine was a college classmate of this writer.)
Liberty has had a checkered history in recent years. Its founder, John Hewitt, who had formerly co-founded the Jackson Hewitt tax prep chain after working as an executive at H&R Block, was ousted from the company in 2019 after a sex scandal involving employees at the company, which had to settle a sexual harassment lawsuit (
To lure consumers, according to the lawsuit, Liberty Tax aggressively promoted immediate handouts of $50 "just for filing with Liberty Tax" early in tax season before the end of February. Liberty Tax referred to it as "cash in a flash" and depicted it as a "perk" with no downside. The company heavily featured "cash in a flash" on its own website, in online videos, and by stationing sign-wavers with signs such as "GET $50 NOW" outside of its stores — which are mainly located in lower-income neighborhoods. However, the company did not disclose that consumers who accepted the cash would be charged more than those who did not. On average (depending on which forms they filed), consumers who accepted the $50 offered by Liberty were then charged anywhere from $67 to $200 more for tax prep services than consumers who didn't participate in the promotion.
Liberty operates four locations in D.C. where it provided over 12,000 cash payments to consumers as part of its "cash in a flash" promotion from 2015 to 2021, according to the AG's office, increasing the prices that thousands of D.C. consumers paid for tax prep without their knowledge, especially low-income taxpayers. On average, according to the AG's office, Liberty charged individuals who file simple returns with only a 1040 and a W-2 an average of $75 more if they accepted the upfront $50 in cash. However, it charged individuals who received the Earned Income Tax Credit an average of $93 to over $200 more than EITC recipients who didn't accept the $50 cash promotion.
