Class action suit filed against Intuit, H&R Block, and other tax software companies

In a case of unchecked government outsourcing, the law firms Feldman Shepherd Wohlgelernter Tanner & Weinstock and Cooley & Handy, this week filed a class action suit against a group of income tax software companies that are part of a cartel known as the Free File Alliance LLC. The suit, brought by Philadelphia resident Stacie Byers, alleges that cartel members including H&R Block and Intuit unlawfully charged millions of U.S. taxpayers excessive e-filing fees. Damages are estimated in the billions of dollars.

"This amounts to a tax on e-filing tax returns. Hardworking taxpayers deserve better," said Feldman Shepherd partner Thomas More Marrone. "This is government outsourcing at its worst."

The complaint, filed in the U.S. District Court for the Eastern District of Pennsylvania, asserts that the IRS contracted with the cartel to collect e-filed federal tax returns on its behalf. As agents of the IRS, federal law required cartel members to set "fair and uniform" fees for e-filing. But cartel members set their fees based solely on profit, the complaint states.

"The private tax software companies have used the 'Free File' arrangement to push commercial products they sell, and until recently tried to get taxpayers to buy high-rate refund anticipation loans," said Alan M. Feldman, Managing Partner of Feldman Shepherd.

"The name 'Free File Alliance' is clearly misleading," Marrone said. "E- filing has become an enormous profit center for cartel members."

The class action seeks a full refund of all fees paid for e-filing, as well as injunctive relief. Defendants include all members of the cartel which charged fees to electronically file federal tax returns. Cooley & Handy partner Kevin Handy said, "The U.S. should join other civilized nations in allowing its citizens to e-file tax returns for free. The truth is it costs the government less to process an e-filed return than a paper one."

Under the terms of the Free File Alliance, the software makers provide free e-filing for low- and moderate-income taxpayers, defined as taxpayers who earn less than $52,000.

The goal is to have the free service reach 70 percent of taxpayers, or about 95 million people. However, use of the program is voluntary and only 5.1 million people took part in the free filing program in 2006, according to the alliance Web site, even though the IRS reports that more than 54 percent of all taxpayers filed returns electronically in 2006.

You may like these other stories...

Ernst & Young 2013 audit deficiency rate 49%, regulators sayMichael Rapoport of the Wall Street Journal reported on Thursday that the Public Company Accounting Oversight Board (PCAOB) found deficiencies in 28 of the...
Some of your clients may get away to business conventions from time to time. It gives them a chance to rub shoulders with colleagues, catch up on the latest developments, and fine-tune their skills. And, when the meetings or...
PwC must face $1 billion lawsuit over MF Global adviceA federal judge on Wednesday ordered PricewaterhouseCoopers (PwC) to face a $1 billion lawsuit claiming that its bad accounting advice was a substantial cause of the...

Already a member? log in here.

Upcoming CPE Webinars

Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 10
Transfer your knowledge and experience to prepare your team for the challenges and opportunities of an accounting career.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.