## Facts

- Congress enacted the Internal Revenue Service Restructuring and Reform Act of 1998, directing the IRS to increase electronic filing primarily through cooperation with, and competition in, the private sector.
- The IRS created the Free File Program and entered a 2002 agreement with Free File Alliance, LLC (a consortium of electronic tax preparation and filing companies) under which member companies offered free e-filing to a substantial portion of taxpayers.
- In 2005, the IRS and Free File Alliance executed a new agreement extending the program with amendments that (1) limited eligibility for free services to the 70% of taxpayers with the lowest adjusted gross income and (2) capped any single member’s free offerings at 50% of all taxpayers (the “Ceiling Provisions”).
- Individual taxpayers who purchased fee-based online tax preparation/e-filing services sued the IRS, Free File Alliance, and member companies (including Intuit and H&R Block), alleging the Ceiling Provisions reduced free options and caused taxpayers to pay fees.
- Plaintiffs asserted (1) an “improper exaction” theory under the Independent Offices Appropriation Act (IOAA) based on fees charged in connection with the program and (2) a Sherman Act § 1 claim alleging an unlawful restraint of trade through limits on free services.

## Issues

1. Whether taxpayers stated a claim under the IOAA that the IRS and private Free File vendors unlawfully exacted money through fees for tax preparation/e-filing services associated with the Free File Program.
2. Whether the complaint plausibly alleged a Sherman Act § 1 violation by private vendors based on the Ceiling Provisions adopted in the IRS–Free File Alliance agreement.
3. Whether, given the program’s statutory and contractual structure, plaintiffs plausibly alleged cognizable antitrust harm and a restraint attributable to private collusion rather than government-directed program design.

## Decision

- The Third Circuit affirmed dismissal of all claims under Rule 12(b)(6).
- The court held the IOAA theory failed because the challenged payments were fees charged by private vendors for services, not government-imposed fees or an unlawful government “exaction” within the IOAA framework.
- The court held the Sherman Act § 1 claim failed because the alleged restraint arose from an IRS-administered program implemented under congressional direction, and the complaint did not plausibly plead anticompetitive effects and antitrust injury in a properly supported market context.

## Legal Principles

- IOAA “illegal exaction” theories require a cognizable government exaction; payments to private parties for privately set charges, even within a government-sponsored program, do not become IOAA exactions absent a sufficient governmental fee-imposition theory.
- Where an alleged restraint is embedded in a government program and contract reflecting congressional policy choices, antitrust allegations must plausibly show a private unlawful restraint of trade and resulting antitrust injury, not merely dissatisfaction with program design that limits free offerings.
- Conclusory assertions that limits on free services increased fees are insufficient without plausible allegations of anticompetitive effects in a relevant market and injury of the type the antitrust laws protect.

## Conclusion

The Third Circuit upheld dismissal of taxpayers’ challenges to the IRS Free File Program’s eligibility and participation caps, ruling that vendor-charged fees were not unlawful exactions under the IOAA and that the pleaded facts did not state a plausible Sherman Act § 1 claim given the government-structured nature of the program and the inadequacy of alleged anticompetitive effects and injury.


Byers v. Intuit, Inc., 600 F.3d 286 (3d Cir. 2010)