An appeals court invalidated the Biden-era Federal Trade Commission’s attempt to punish Intuit for allegedly deceptive ads that pitched TurboTax as free.
Under then-Chair Lina Khan, the FTC determined in 2024 that the TurboTax maker violated US law with deceptive advertising and ordered it to stop telling consumers, without more obvious disclaimers, that TurboTax or other products are free. The FTC’s chief administrative law judge had previously found that Intuit’s ads violated prohibitions on deceptive advertising because the firm “advertised to consumers that they could file their taxes online for free using TurboTax, when in truth, for approximately two-thirds of taxpayers, the advertised claim was false.”
Intuit appealed in the conservative-leaning US Court of Appeals for the 5th Circuit and got a resounding victory on Friday in a 3–0 ruling issued by a panel of judges. “Following the Supreme Court’s decision in SEC v. Jarkesy, we hold that adjudication of a deceptive advertising claim before an administrative law judge violated the constitutional separation of powers,” the 5th Circuit panel said.
The Supreme Court’s June 2024 ruling in Securities and Exchange Commission v. Jarkesy held that the SEC system for issuing fines violated the right to a jury trial. The 5th Circuit panel said the Jarkesy decision confirms that the FTC must pursue deceptive advertising claims in courts rather than its own administrative process.
Intuit says it’s “thrilled”
The ruling, written by Circuit Judge Edith Jones, said that dismissing the case against Intuit would be premature because the claims can be tried in court. Jones wrote:
Intuit seeks reversal of the FTC’s cease-and-desist order with instructions to dismiss. Dismissal is premature. We hold that FTC’s enforcement action must proceed in federal court. Several consequences may follow from this: the standard of proof required on remand may be elevated from substantial evidence to a preponderance; the agency will have to explain the necessity of any order, given that Intuit stopped running the offending ads years ago; and the practicability, scope, and longevity of a cease-and-desist order will have to be reconsidered.
Intuit now faces more friendly regulators under the Trump administration than it did under Biden. Trump fired both Democratic members of the FTC, leaving it with only Republican commissioners, and the Supreme Court has so far declined to overturn Trump’s action.
The FTC is now led by Chairman Andrew Ferguson, who backed Trump’s firing of FTC Democrats and disputed the previous administration’s position that the Jarkesy ruling didn’t apply to FTC administrative law judges. The Trump administration also ended the IRS free tax-filing service that Intuit lobbied against.
Intuit issued a statement after the 5th Circuit ruling. “I’m thrilled that, once this matter returned to a neutral decision-maker, common sense carried the day,” Intuit General Counsel Kerry McLean said. “From the beginning, we were confident in our case and that, when this matter returned to a neutral body like the Fifth Circuit, Intuit would prevail.”
Intuit called the FTC allegations “meritless,” and said the tax-preparation firm “has always been clear, fair, and transparent with its customers and we are proud that over the past 12 years, we’ve helped more than 140 million Americans file their taxes for free.”
In 2022, Intuit agreed to a settlement with all 50 states to pay $141 million in restitution and stop a specific ad campaign that marketed TurboTax as “free, free, free.”
Court calls FTC’s Intuit order “remarkably broad”
The 5th Circuit ruling acknowledged that most people can’t use TurboTax for free. “TurboTax ‘Free Edition’ has been part of the TurboTax range for more than a decade, available to taxpayers for what Intuit refers to as ‘simple tax returns,’” the ruling said. “Most American taxpayers do not have ‘simple tax returns.’… The TurboTax website is designed so that any individual taxpayer can begin preparing a tax return in TurboTax Free Edition, but those who enter disqualifying information are prompted before filing to upgrade to a paid product.”
Although the court noted that Intuit stopped the specific ads challenged by the FTC, the ruling said the cease-and-desist order issued by the agency could have far-reaching effects on Intuit marketing. “The cease-and-desist order is remarkably broad: it prohibits Intuit for the next twenty years from advertising ‘any goods or services’ as free unless specific, extensive, and arguably unworkable requirements are satisfied. The order is not confined to tax-preparation solutions and extends to all products sold by Intuit,” the ruling said.
The 5th Circuit said the FTC’s deceptive advertising claims are “traditional actions at law and equity and thus involve private rights that demand adjudication in an Article III court.” The court rejected the FTC’s argument that the claims involve public rights that may be adjudicated by administrative agencies.
“In sum, there is overwhelming evidence that Section 5 of the FTC Act did not create a new duty for merchants to refrain from deceptive advertising,” the 5th Circuit said. “That duty long predated the FTC Act and could be enforced by private parties in actions at common law or equity for fraud, deceit, or unfair competition.”
FCC power to issue fines also at risk
In Jarkesy, the Supreme Court said that “matters concerning private rights may not be removed from Article III courts. If a suit is in the nature of an action at common law, then the matter presumptively concerns private rights, and adjudication by an Article III court is mandatory.”
By contrast, matters involving public rights may be handled exclusively by the executive and legislative branches without a court’s involvement. Categories that fall within public rights include: “collection of revenue; aspects of customs law; immigration law; relations with Indian tribes; the administration of public lands; and the granting of public benefits,” the Jarkesy ruling said.
The Jarkesy precedent that helped Intuit beat the FTC is also at the center of a case in which AT&T, Verizon, and T-Mobile are challenging the Federal Communications Commission’s authority to issue fines for selling customer location data without their users’ consent. The mobile carriers’ fight against FCC punishment is set to be decided by the Supreme Court.
Although current FCC Chairman Brendan Carr voted against the mobile-carrier penalties during the previous administration, the Carr FCC is urging the Supreme Court to uphold his agency’s ability to issue fines. The FCC argues that companies it fines can decline to pay and eventually receive a jury trial when the government sues to obtain the fine.
“Forfeitures are among the FCC’s most important enforcement tools,” the FCC told the Supreme Court on Friday. “Eliminating them could mean that many vital rules—such as those protecting privacy, combating robocalls, and regulating broadcasting—go effectively unenforced.”
