Intuit’s Bogus Argument: Free Tax Filing Harms Black Taxpayers

This story was originally published by ProPublica.

For the past quarter century, Intuit, the maker of TurboTax, has worked to thwart one clear threat to its profits: a free, publicly funded tool to file taxes online. The company’s success at preventing that threat was near total — until earlier this year, when the IRS announced a plan to test such an approach. Advocates cheered, seeing it as a first step to a system where Americans, particularly low-income taxpayers, could easily avoid paying big fees for tax preparation.

It’s a new chapter in the long-running conflict over free tax filing, but Intuit has fallen back on some tried-and-true tactics, ones previously documented by ProPublica. In Washington, D.C., the company has deployed 63 lobbyists this year, according to OpenSecrets, to stalk the halls of government. Meanwhile, op-eds and stories that parrot Intuit’s talking points have appeared in at least 20 newspapers and other publications across the country.

The centerpiece of this PR push has been an argument that Intuit unveiled on its website in May. Seeking to capitalize on recent research that found racial disparities in IRS audits, the company has argued that an IRS tax filing tool would only make things worse. It’s a conclusion rejected by authors of that research, but the idea has certainly made for some eye-catching headlines.

“IRS Free Tax Service Could Further Harm Blacks,” is how the Defender, a Black paper in Houston, put it in a June headline. The piece cited unnamed “industry experts” as raising the concern but quoted only one person by name: Intuit’s spokesperson Derrick Plummer. The story was produced by Trice Edney News Wire, a service that provides content to local Black papers across the country. Hazel Trice Edney, the service’s editor-in-chief, did not respond to requests for comment.

Later that month, an article in Black Enterprise (“Critics Claim The IRS Free Tax Prep Service Could Hurt Black Americans”) took a similar approach. The story’s arguments were attributed to “industry skeptics” or other unnamed opponents of the IRS proposal, while Intuit’s Plummer was the only critic identified by name, and he was quoted at length. Ida Harris, Director of Digital Content for Black Enterprise, which touts itself as “the premier business, investing, and wealth-building resource for African Americans,” told ProPublica that “the story came to fruition through information shared by a fellow media professional,” but declined to identify who that was. The article was “not sponsored content, no payola was involved,” she said.

Internal Intuit documents from last decade, previously divulged by ProPublica, made clear that “pushing back through op-eds” was part of the company’s strategy against what it called government “encroachment.” One specific goal: “Buy ads for op-eds/editorials/stories in African American and Latino media.” ProPublica did not find evidence that Intuit has paid to place stories this year, but otherwise, the 2023 campaign seems to be following that template.

TurboTax has long dominated the market for online tax filing, in part by luring customers with the promise of “free” filing. A wave of government investigations, prompted by ProPublica’s reporting, has accused Intuit of frequently misleading customers with that promise. Most recently, a Federal Trade Commission judge ruled that the agency’s fraud suit against Intuit can proceed. Intuit has denied wrongdoing and has vowed to appeal.

Back in 2014, ProPublica reported on an Intuit-backed campaign against the idea of return-free filing, a government service that would pre-fill tax return information, just as governments do in many other countries. A rabbi, a state NAACP official and others penned pieces claiming return-free filing would hurt “the most vulnerable people.” Various PR firms and lobbyists were involved in organizing the effort.

This time around, the threat to the tax prep industry is what the IRS has called a direct file option. The agency will build an online tool similar to TurboTax that allows people to file their taxes by answering simple questions. The option will not be widely available next tax season, however, since it is only a test run. The agency has yet to detail who will be eligible to use it.

“The fact of the matter is that the industry is targeting black and brown communities trying to stoke fear of a direct file tool,” said Brandon Tucker, senior policy director of Color of Change, an online activist organization devoted to racial justice that supports direct file. “Black people are critical to their profit margins.”

In a statement, Plummer, Intuit’s spokesperson, declined to comment on the company’s role in the recent spate of op-eds, except to deny it had paid to secure the pieces. “With an idea as bad as the Direct File scheme we don’t have to pay anyone to talk about how terrible it is,” he wrote. “The fact that Americans across the political spectrum and people of color are raising alarm bells about how harmful the Direct File scheme will be to the most vulnerable should be a wake-up call to its cheerleaders.”

In July, Benjamin Chavis penned the highest profile entry in the current wave of Intuit-friendly op-eds. Chavis is a former executive director of the NAACP who currently heads the National Newspaper Publishers Association, a trade association for Black papers. He also is the national co-chair of No Labels, which seeks to raise $70 million to launch a third-party presidential ticket for 2024. (“Dr. King was a centrist” and would have supported No Labels, Chavis has argued.) Chavis did not respond to questions from ProPublica. His Chicago Tribune op-ed did not quote Intuit, but used language that echoed the company’s arguments. “The IRS has an alternative to TurboTax. But will that widen the racial wealth gap?” was the headline.

One of Chavis’ arguments, that an IRS tool could lead Black taxpayers to miss out on tax credits, came from a report by the Progressive Policy Institute. Despite its name, the nonprofit think tank is aligned with the pro-business wing of the Democratic Party and has a long history with Intuit. (One Intuit document listed PPI as part of its “coalition.”) After the company’s long-tenured chief lobbyist retired, he joined PPI’s board. PPI declined to say whether Intuit had contributed to the organization. In a statement, PPI President Will Marshall said, “No funding source has a vote on the subjects PPI tackles or the positions it takes.”

The core of Chavis’ piece was the same as the earlier stories by Trice Edney News Wire and Black Enterprise — an argument from an Intuit blog post.

Earlier this year, a study by a team of academic and government researchers found that the IRS audited Black taxpayers between three and five times the rate of other taxpayers. As a result, Intuit argued, having the IRS prepare the taxes of Black taxpayers “would likely increase these inequities.” Chavis more timidly offered that it “may increase racial income inequality.”

The study itself, however, lends no support to that conclusion. The authors pinpointed audits of people who claim the earned income tax credit as the driver of the racial disparity. The EITC is one of the main anti-poverty programs in the U.S. and is aimed primarily at low-income, working parents: Most recipients earn under $20,000 a year. For decades, the IRS has disproportionately audited EITC claimants because of pressure from Republicans in Congress as well as laws that require a special focus on “improper payments.”

Together with the gutting of the IRS’ budget, which caused audits of the rich to tank, the focus on the EITC meant the agency audited those who claimed the credit at about the same rate as the top 1% of taxpayers by income. Another clear consequence was that Black taxpayers, who on average have lower incomes, were disproportionately audited. ProPublica examined these problems in articles in 2018 and 2019. One of those articles reported that “the five counties with the highest audit rates are all predominantly African American, rural counties in the Deep South.” ProPublica’s work was cited in Congress as well as in the study.

The researchers found that the way the IRS selected EITC audits made the disparity even worse, but put the blame on “seemingly technocratic choices about algorithmic design,” not conscious bias.

Evelyn Smith, one of the co-authors of the study and a Ph.D. candidate in economics at the University of Michigan, disagreed with Intuit’s take on her work. “With free, assisted filing, we might expect EITC claimants to make fewer mistakes and face less intense audit scrutiny, which could help reduce disparities in audit rates between Black and non-Black taxpayers,” she said.

Last week, in response to the study’s findings, the IRS announced major changes to how it audits EITC claims. The agency will “substantially” reduce the number of EITC audits, said IRS Commissioner Daniel Werfel. The move is part of the IRS’ broader shift to focus more on high-end tax evasion.

The recent PR push against direct file has not been limited to Black publications and authors. In Nevada, a pair of accountants and the state’s former controller penned op-eds in local newspapers with almost the same wording. “We urge Nevadans to speak out about this congressional proposal and urge our elected officials in Washington D.C. to not let the IRS have more power than it already has!” said one. “I urge all Nevadans to speak out about this Congressional proposal and urge our elected officials in Washington D.C. to not let the IRS have more power than it already has!” said the other. Neither the writers nor the editors of papers they appeared in responded to requests for comment.

In Arizona, a lawyer named Phillip Austin, vice chair of the East Valley Hispanic Chamber of Commerce, argued in the Arizona Republic in July that the IRS providing free tax filing “would disproportionately hurt the Hispanic community.” Austin told ProPublica that he was not compensated for writing the piece. “I submitted the letter as an Op-Ed, reflecting my opinion, citing research,” he said, but declined to say how he came to write it.

Meanwhile, there’s been a steady supply of op-eds and letters from right-leaning and centrist nonprofits denouncing direct file in politically oriented Washington, D.C., publications. In July alone, The Hill ran four op-eds against the idea. One came from Center Forward, a group that says it aims to “give voice to the center of the American electorate.” Recently listed as among the group’s “stakeholders” was H&R Block’s chief lobbyist. Neither Center Forward nor H&R Block responded to requests for comment.

While the op-eds keep coming, the tax prep industry did get one early win in Congress. In July, the House Appropriations Committee passed a provision barring the IRS from spending money on “a free, public electronic return-filing service option.” A similar provision almost became law in 2019.

This provision is unlikely to pass in the Democratic-controlled Senate, however. Instead, the IRS is on track to launch its direct file pilot next tax season. What happens after this spring is unclear — except that Intuit will continue to work to make sure the idea goes no further.