TurboTax maker Intuit’s $100 million tax credits challenged by US lawmakers

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TurboTax maker Intuit’s tax breaks are being questioned by four US lawmakers who object to the federal research tax credits claimed by the company. A letter sent this week claims that the amount of Intuit’s tax credit could have been used by the Internal Revenue Service to offer free online tax filing to many Americans.

“We write regarding Intuit’s recent disclosure that your company received $94 million in federal research tax credits in 2022,” the letter said. “For years, Intuit’s corporate lobbyists have argued that the federal government should not set up a program for Americans to file their taxes online and for free because it would be too costly for taxpayers. Your company’s disclosure reveals that Intuit’s research tax break from 2022 alone could have been enough to fund a year of a free eFile program for millions of Americans.”

The letter was sent to Intuit CEO Sasan Goodarzi by US Senators Elizabeth Warren (D-Mass.), Richard Blumenthal (D-Conn.), Bernie Sanders (I-Vt.), and US Representative Katie Porter (D-Calif.)

Intuit’s regulatory filing said the company’s federal research and experimentation tax credits were $70 million in fiscal 2021, $94 million in 2022, and $106 million in 2023. Intuit’s fiscal year runs through July 31.

Intuit criticized the lawmakers’ letter in a statement provided to Ars. “Don’t take the bait—this letter is actually about Capitol Hill budget negotiations and desperation around a Direct File scheme that will cost taxpayers billions of dollars for something already free of charge and with potentially disastrous effects on the finances of millions of Americans,” Intuit said. The company also defended its tax credits, saying they cover research on AI and other technology that improves “personalized financial recommendations.”

Lawmakers want “full accounting” of research

Congress created the research tax credit in 1981 and made it permanent in 2015. “Typically, 6% to 8% of a company’s annual qualifying R&D expenses can be applied, dollar for dollar, against its federal income tax liability,” ADP explains.

Businesses can claim a wide variety of expenses for the credit, ADP says. It can cover “developing processes, patents, formulas, techniques, prototypes or software; improving or redesigning existing products; hiring scientists, designers or engineers that are engaged in qualified activities; devoting time and resources to creating (manufacturing or developing) new or innovative products; developing intellectual property; [and] paying certain amounts for salaries, supplies, contract research and cloud hosting.”

Warren previously criticized other companies’ use of the research tax credit. The lawmakers’ letter to Intuit said the tax credit’s purpose “is to spur innovation and growth for the economy as a whole, not to subsidize the profits of already dominant companies.”

“Accordingly, we request that Intuit provide a full accounting of the research expenses underlying your massive tax breaks to better understand whether these corporate subsidies are in the best interest of the American people,” the letter said.

The letter cited IRS estimates that “it would cost somewhere between $64 million and $249 million each year to run a free e-File program.” That IRS estimate covers a range of scenarios from “5 million users and a narrow scope of covered tax situations” to “25 million users and a broad scope of covered tax situations.”

“Intuit’s research tax break from 2022—which helped drive down your company’s federal tax rate to a paltry 10.5%, a lower rate than many middle-class Americans pay on their income—exceeds the lower bound of those estimates,” the lawmakers’ letter said. “In other words, with the money that the federal government used to subsidize Intuit’s research, the IRS could have offered free, online tax filing to millions of Americans, saving taxpayers the cost and risk of putting their data in the hands of the private tax preparation industry.”

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