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Shaheen, Warren urge IRS to scrutinize TurboTax practices

Two senators are asking banking regulators and the IRS to look into the practices of tax preparation company Intuit TurboTax.

After getting complaints from constituents, New Hampshire Sen. Jeanne Shaheen and Massachusetts Sen. Elizabeth Warren, both Democrats, wrote to the Internal Revenue Service, the Consumer Financial Protection Bureau and the Federal Reserve last week calling for scrutiny on the way TurboTax collects filing fees and distributes refunds.

In question is the relationship between Intuit TurboTax and Green Dot Bank.

Instead of refunds being deposited into taxpayers’ bank accounts, the senators said New Hampshire and Massachusetts taxpayers are among those who have had the TurboTax program deposit their refunds in another bank, where an account was opened in their name without their permission.

“The outsourcing of vital IRS functions undoubtedly benefits private companies like Intuit and Green Dot Bank, but also leads directly to financial damage and mental anguish for our constituents,” the senators wrote.

For some customers, Intuit’s TurboTax deposited their refunds in the Utah-based Green Dot bank, where those taxpayers did not have accounts. Because they were not considered Green Dot customers, the senators wrote, the taxpayers could not get through an automated phone system to track down their refunds, and their normal banks did not have any record of the refunds.

The IRS can ask Green Dot to move customers’ refunds to their normal account, the senators wrote, but the bank is not obliged to respond.

Intuit and Green Dot Bank are likely profiting from this arrangement, as taxpayers are encouraged or even required to establish accounts with Green Dot Bank in order to claim their refunds, the senators wrote.

“Taxpayers already waste too much time and money filing taxes,” they wrote.

“We urge you to investigate and address this situation for these taxpayers, and also to prevent private tax filing companies like Intuit from compelling more taxpayers to establish new accounts with partner banks, simply to claim their tax refunds.”

Warren and Shaheen praised the Inflation Reduction Act’s provisions to fund the IRS to bring more services in-house and fund more employees to help taxpayers file returns, and urged the IRS to develop its own free file system.

They said they have advocated extensively for a truly free and simple process by which taxpayers may file their returns directly with the IRS.

The Inflation Reduction Act includes a directive for the IRS to take concrete steps towards implementing a simplified filing system, as well as significant resources to make the necessary IT investments, including $25 billion for operations support, $4.75 billion for business systems modernization, and $4 billion for taxpayer services.

“We urge the IRS to develop its own simple, free filing service that taxpayers can use if they prefer not to have their refunds diminished by fees, their tax data shared with private companies, and their money whisked into banks they themselves did not choose,” the senators wrote.