There are fears that Intuit’s takeover of Credit Karma will reduce competition in the tax services business.

According to ProPublica, a non-profit newsroom that investigates abuse of power, the US Justice Department will investigate Intuit Inc (NASDAQ: INTU)’s $7.1 billion acquisition of Credit Karma announced in February. Intuit is an American business and financial software company that develops and sells financial, accounting, and tax preparation software. It has a market capitalization of $81 billion. Credit Karma is a fintech that launched a free tax return service that became a formidable rival to Intuit.

Competitive landscape

According to ProPublica, Intuit has the lion’s share (67%) of the online tax preparation market. In February, ProPublica wrote that the transaction would be anti-competitive because it would eliminate a rival and perpetuate Intuit’s dominance.

“Allowing a near-monopolist to eliminate a maverick competitor poses obvious risks of harm,” then said John Newman, a former DOJ Antitrust Division trial attorney. He is now a law professor at the University of Miami.

“It’s hard to imagine any reason why this should be allowed.”

ProPublica now claims to have obtained a June memo from government lawyers that described the tax giant’s strategy. It reveals that the government is concerned about the effect of the deal on the consumer tax preparation platforms and software market.

Information required

According to ProPublica, at the moment the government is on a fact-finding mission. It has requested additional information from the deal-making companies.

The government’s probe includes questions asking Intuit to reveal more details about its role in the Free File program, under which TurboTax and other tax filing companies are required to offer free tax filing options to Americans.

Based on the information received, the government will decide on the transaction.

It could be a tough call, with a rising swell of protest surrounding the deal.

Chris Sagers, an antitrust expert at the Cleveland-Marshall College of Law, said it appeared that Intuit was acquiring Credit Karma to eliminate a competitor. “It won’t be lost on the DOJ staff lawyers that it is likely Intuit’s motive.”

Related Story:      Intuit Looks to Buy Credit Karma for About $7 Billion, Says WSJ