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Alaska Ignored Warning Signs of a Budget Crisis. Now It Doesn’t Have Funding to Fix Crumbling Schools.

Trump Administration Halted Lawsuits Targeting Civil Rights Abuses of Prisoners and Mentally Ill People

Alaska Ignored Warning Signs of a Budget Crisis. Now It Doesn’t Have Funding to Fix Crumbling Schools.

Trump Administration Halted Lawsuits Targeting Civil Rights Abuses of Prisoners and Mentally Ill People

Alaska Ignored Warning Signs of a Budget Crisis. Now It Doesn’t Have Funding to Fix Crumbling Schools.

Trump Administration Halted Lawsuits Targeting Civil Rights Abuses of Prisoners and Mentally Ill People

Last fall, Intuit’s longtime CEO Brad Smith embarked on a farewell tour of the company’s offices around the world. Smith had presided over 11 years of explosive growth, a period when Intuit had secured its place in the Silicon Valley pantheon, and the tour was like a long party.

Intuit began in the 1980s as an accounting software company focused on helping people with their bookkeeping. Over time, the company, like the other giants of Big Tech, cultivated an image of being not just good at what it did, but good, period. In a recent Super Bowl ad, Intuit portrayed itself as a gentle robot that liberates small-business owners from paperwork. The company stresses values above all, urging employees to “deliver awesome” and pursue “integrity without compromise.”

Intuit’s QuickBooks accounting product remains a steady moneymaker, but in the past two decades TurboTax, its tax preparation product, has driven the company’s steadily growing profits and made it a Wall Street phenom. When Smith took over in 2008, TurboTax was a market leader, but only a small portion of Americans filed their taxes online. By 2019, nearly 40% of U.S. taxpayers filed online and some 40 million of them did so with TurboTax, far more than with any other product.

But the success of TurboTax rests on a shaky foundation, one that could collapse overnight if the U.S. government did what most wealthy countries did long ago and made tax filing simple and free for most citizens.

Since Free File’s launch, Intuit has done everything it could to limit the program’s reach while making sure the government stuck to its end of the deal. As ProPublica has reported, Intuit added code to the Free File landing page of TurboTax that hid it from search engines like Google, making it harder for would-be users to find.

Intuit knows it’s deceiving its customers, internal company documents obtained by ProPublica show. “The website lists Free, Free, Free and the customers are assuming their return will be free,” said a company PowerPoint presentation that reported the results of an analysis of customer calls this year. “Customers are getting upset.”

The IRS is seemingly the biggest threat to Intuit and other commercial tax prep businesses, but it has more frequently acted as the industry’s ally, defending the Free File program even in the face of critical internal reviews. The IRS declined to comment for this article.

The consequences of Intuit’s efforts affect a huge proportion of the taxpaying public. Americans spend an estimated 1.7 billion hours and $31 billion doing their taxes each year. Just 2.8 million participated in the Free File program this year, down from 5.1 million at the program’s peak in 2005.

Intuit’s success has made the men who run the company rich. Smith, the CEO who stepped down last year and is now executive board chair, had a stake worth $20 million when he became chief executive. It ballooned to $220 million by last year. Co-founder Scott Cook is now among the country’s wealthiest people, his fortune soaring to $3.3 billion.

This year, Intuit was close to realizing a long-held goal: enshrining the Free File program in law, effectively closing the door on the IRS ever creating a free tax filing system. But an outcry followed ProPublica’s reporting on the matter and Intuit’s treatment of its customers, prompting the provision to be dropped and state and federal investigations into Intuit’s practices.

Yet even after this setback, the company remained steadfastly confident that its clout in Washington would win the day.

“What we’re not gonna do is fight this publicly because that is exactly what they want us to do,” said Sasan Goodarzi, the new CEO, in a video released to staff this May and obtained by ProPublica. “We are actually working with the IRS and members of the Congress to ensure that the facts are very clear.”

Intuit has dominated the tax software market since 1993, when for $225 million, it bought Chipsoft, the San Diego-based company that had created TurboTax. Even then, TurboTax was the most popular option, but Intuit pursued a plan of aggressive growth. The product necessarily came on a disk, and by the end of the 1990s TurboTax boxes were nearly ubiquitous, on shelves in office supply stores across America.

As internet speeds increased and dot-com mania took hold, it became apparent that Intuit’s future was not in a box on a shelf. It was online.

The prospect of TurboTax’s growth was vast for another reason. As late as 2001, around 45 million Americans still filled out their tax forms on paper. For Intuit, those were all potential customers.

But Intuit wasn’t alone in seeing possibilities in the spread of high-speed internet. In Washington, lawmakers began pushing the IRS to modernize and get more taxpayers to file electronically. It was a no-brainer: Filing taxes online would be easier, and the IRS would save staff costs on processing paper returns.

The danger to Intuit’s growing business was obvious. If the government succeeded in creating a system that allowed the vast majority of taxpayers to file online for free, TurboTax profits would plummet. Intuit recognized that the notion of “return-free filing” was not going away on its own.

McKay, for his part, when asked at a recent tax industry conference which Star Wars character he is, responded, “Darth Vader.”

The year McKay was hired, Congress passed a major overhaul of the IRS. The bill, reflecting Intuit’s lobbying, said that the IRS “should cooperate with and encourage the private sector” to increase electronic filing.

While McKay came through in his first big test, in 2002, the company found itself up against an unexpected foe, the George W. Bush administration. The threat came from a broad administration initiative to upgrade government technology. One of the proposals called for the IRS to develop “an easy, no-cost option for taxpayers to file their tax return online.”

At the IRS, “all hell broke loose,” remembered Terry Lutes, who was then the head of electronic filing at the agency. Intuit’s clout on the Hill meant that lawmakers were soon accusing the IRS of making “secret plans to undercut the industry,” Lutes said. The agency ran the risk of seeing its funding cut if it were to pursue the Bush plan.

So the IRS felt caught in the middle. The question became, Lutes said, “Is there some way to come out of this with something for taxpayers that addresses the administration’s objective and at the same time is acceptable to industry?”

Intuit, it turned out, did have a way. Since 1999, as part of the company’s strategy to head off encroachment, TurboTax had been offering free tax prep to the poorest filers. It was a program that served to bolster the company’s arguments that government intervention was unnecessary.

This became the basis for a deal. The industry would offer free tax prep to a larger portion of taxpayers. In exchange, the IRS would promise not to develop its own system.

For Intuit, it was the culmination of years of lobbying. The IRS had signed a contract that said it “will not compete with the [Free File Alliance] in providing free, online tax return preparation and filing services to taxpayers.”

What’s more, “free” wasn’t as unprofitable as it sounded. The alliance, guided by a lawyer who was also an Intuit lobbyist, won a series of concessions that made the program palatable to industry. Free File only required the companies to offer free federal returns. They could charge for other products. The state return was the most common, but they could also pitch loans, “audit defense” or even products that had nothing to do with taxes.

Free File had another bright side: The companies could tailor their Free File offers so that they didn’t cut into their base of paying customers. The agreement said the industry had to offer free federal services to at least 60% of taxpayers, but each company individually only had to cover 10% of taxpayers. Intuit and the others were free to limit their offers of free tax prep by age, income or state.

There was little incentive for the companies to publicize a free alternative to their paid products, and the IRS agreed that the Free File offers need only be listed on a special page of the agency’s website.

For Intuit, it was a major victory in the war against encroachment. The company could now focus on turning whatever new customers it acquired through the program into paying users, both that year and in the future.

But the next year, Intuit began to lose control of its creation. A scrappy competitor, TaxAct, decided to use Free File to stand out. The company decided it would try to pick up as many new customers as possible and then charge them for ancillary services. Instead of following Intuit’s lead and constraining its offer to a subset of low-income taxpayers, TaxAct went the opposite direction.