The FTC is going to war with tax services that bill themselves as free

• The FTC filed a lawsuit against H&R Block over what the commission called deceptive advertising.
• It alleges that H&R Block tricks users into starting with a higher-cost service, making downgrading difficult.
• This follows a similar FTC action against Intuit for misleading practices with its TurboTax service.

So-called "free" online tax filing services like Intuit's TurboTax and H&R Block's Online Filing option have, for a long time, not actually been free for many Americans.

But the FTC has now committed to taking them on one by one — most recently with a new lawsuit against H&R Block.

The consumer protection agency filed a complaint against H&R Block last week, accusing the company of deceptive advertising and unfairly deleting users' tax data.

"H&R Block designed its online products to present an obstacle course of tedious challenges to consumers, pressuring them into overpaying for its products," Samuel Levine, the Director of the FTC's Bureau of Consumer Protection, said in a press release.

"Today's action demonstrates that companies using coercive techniques that harm consumers can expect to hear from the FTC," Levine continued.  

In its complaint, the FTC alleges that H&R Block's online filing system leads users to start off with a higher-cost service, having them spend time entering all their tax information before they realize later on in the process that they can actually downgrade to a free or lower-cost option.

But, when they try to downgrade, they are met with a series of time-consuming challenges, according to the FTC's statement. The system deletes all the data the user had just painstakingly entered, telling them to instead contact a customer service agent to access the downgraded option, which makes them start all over again. In contrast, when a user wants to upgrade their service, the process is instant and seamless, the FTC alleged.

The FTC's complaint also accused H&R Block of deceptively advertising a "free" service, despite the fact that many users do not even qualify for it.

In response to the allegations, H&R Block's chief legal officer Dara Redler told Business Insider the company provides "a great deal of value, unmatched tax expertise, and fair and transparent pricing."

"Further, H&R Block allows consumers to downgrade to a less-expensive DIY Product via multiple mechanisms while ensuring the preparation of accurate tax returns," Redler's statement to Business Insider continued.

If all this sounds familiar, that's because it is. The FTC has also taken on Intuit, the maker of TurboTax, accusing them of misleading practices. The consumer agency first sued Intuit in 2022, finally ruling in January of this year that the company cannot advertise its services as "free" unless all consumers qualify, or the ads clearly say who does.

Intuit is appealing the FTC's ruling, and company spokesperson Derrick L. Plummer said in a statement to NPR that the opinion was "deeply flawed."

"This decision is the result of a biased and broken system where the Commission serves as accuser, judge, jury, and then appellate judge all in the same case," Plummer said in the statement.

A 2019 ProPublica investigation found Intuit and H&R Block's practices — including hiding their free filing options from Google search — are part of a decadeslong lobbying effort by the companies to keep tax filing services complicated.

Both companies spend millions of dollars a year convincing lawmakers to maintain the current system, which so happens to result in consumers buying their products, Business Insider previously reported. It was partially because of those lobbying efforts that the IRS did not roll out its own online free tax filing pilot until last year.