Tax Software Firms, Organization Partnering with IRS Were Immune from Antitrust Suits

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A group of private sector tax software companies and an organization that allied those companies in a free tax preparation and e-filing service partnership with the Internal Revenue Service (IRS) were protected under the implied immunity doctrine from claims asserted by a putative class of taxpayers and tax preparers that the companies and organization violated federal antitrust law by agreeing among themselves to limit their offering of free electronic-filing ("e-filing") services to the taxpayers, according to the U.S. Court of Appeals in Philadelphia. Dismissal of the claims was affirmed.

The claims originally had been dismissed at the federal district court level in 2008 (2008-1 Trade Cases ¶76,193). However, the plaintiffs were granted leave to amend their complaint on the basis that it might be possible for them to allege facts triggering an exception to conduct-based implied antitrust immunity that had been created by the Supreme Court in 1973. The plaintiffs did replead, attempting to invoke this exception, but their claims were again dismissed last year.

Conduct-Based Immunity

The defending companies and organization were entitled to conduct-based immunity because their allegedly anticompetitive conduct was compelled by the terms of the partnership agreement and appeared to be consistent with the IRS's policy regarding electronic tax preparation and filing, the appellate court decided.

Rejected was an argument that the conduct-based implied antitrust immunity was accorded to private parties like the defendants only when they were acting at the direction of a government agency and providing a government service. The specific nature of a private entity's conduct did not need to be the provision of a governmental function, provided the conduct was directed by a federal agency, pursuant to a defined government program or policy. Whether the particular activity in question was of a private or governmental nature was immaterial, the court noted.

Free to File” Partnership Agreement

It was clear that the IRS was statutorily authorized to enter into the "Free File" program partnership agreement with the defending companies and organization, and that the agreement and its accompanying Memorandum of Understanding explicitly required the defendants to restrict the availability of free electronic tax preparation and filing services under the program, the court explained.

The IRS's decision to limit the availability of free services under the Free File program was part of its ongoing attempt to achieve the statutory goal of increased e-filing through cooperation with the private sector.

Exception to Implied Immunity Doctrine

The implied immunity doctrine exception articulated by the Supreme Court in Otter Tail Power Co. v. United States (1973-1 Trade Cases ¶74,373) was inapplicable, the court added. That exception pertained only to cases in which (1) a private entity had insisted on anticompetitive restrictions in its contract with a government agency and (2) those restrictions hindered the government.


Allegations that the challenged output ceiling provisions in the partnership agreement were inserted at the defendants' insistence and hampered the IRS's ability to fulfill its goal of increasing electronic filing were directly refuted by the agency the following year, in the Management Response portion of a report issued by the Treasury Inspector General for Tax Administration analyzing the partnership agreement.

The decision is Byers v. Intuit Inc., 2010-1 Trade Cases ¶76,928.