TurboTax Temporarily Halts E-Filing In All States Amid Fraud Concerns

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TurboTax Temporarily Halts E-Filing In All States Amid TurboTax Fraud Concerns

Up to 18 states are reporting significant upticks in fraudulent activity and there may be a common thread: tax preparation software.

Individual State Departments of Revenue are loathe to name names but have been quick to point the finger away from their own systems.

The State of Alabama Department of Revenue released a statement yesterday about fraud concerns, saying only, “The fraudulent filings originate from data compromised through a third-party commercial tax preparation software process and were detected through ADOR’s fraud detection systems.” They were quick to assure taxpayers, however, that “[o]ur systems have not been compromised.” Just two weeks into tax season, however, the number of suspicious returns in the state has already hit 16,000, all of which were “filed suspected of fraud from the third-party commercial tax preparation software.”

Similarly, the State of Utah has issued a warning (downloads as a pdf) about fraudulent returns, saying, “The fraudulent filings originate from data compromised through a third-party commercial tax preparation software process and were detected through the Tax Commission’s fraud detection systems.” Utah also attempted to quiet taxpayers fears, saying, “All information in the State’s tax computer system remains secure and has not been compromised.” Utah did not call any particular provider out as solely responsible but did offer that the Tax Commission “was also notified by some taxpayers as they tried to file their returns through Intuit INTU -3.13%/TurboTax, that they received a message that their return had already been filed.” Utah has pegged the number of potentially affected returns at 8,000.

That’s the same error reported in a number of states. So far, only the Minnesota Department of Revenue has stopped accepting tax returns submitted using Intuit’s TurboTax software. Minnesota has not indicated how many taxpayers might be affected.

Following up on taxpayer concerns, Intuit announced that it is working with state agencies to address the problem. Intuit reached out to Palantir, a third party security expert, to make a preliminary investigation of the most recent fraud activities. The initial findings have led Intuit to believe that these instances of fraud did not result from a security breach of its systems. Instead, the company believes that the information used to file fraudulent returns was obtained from other sources outside the tax preparation process.
Intuit stressed that they are continuing to investigate. “We understand the role we play in this important industry issue and continuously monitor our systems in search of suspicious activity,” said Brad Smith, Intuit president and chief executive officer. “We’ve identified specific patterns of behavior where fraud is more likely to occur. We’re working with the states to share that information and remedy the situation quickly. We will continue to engage them on an ongoing basis in an effort to stop fraud before it gets started.”
So what’s next? As of yesterday, Thursday, February 5, Intuit is temporarily pausing transmission of state e-filing tax returns. This is effective for all states. Intuit will be working with the states today to begin turning transmissions back on.

If you have already filed your state tax return using Intuit software during this temporary pause, you’ll just have to wait it out: taxpayers will have their returns transmitted as soon as possible. There’s nothing that you can do just yet. Trying to file again will just cause you more delays down the road.

Intuit stressed that this action does not affect the filing of federal income tax returns. It also clearly does not affect taxpayers who are not e-filing state tax returns.

So far, there has been no indication that federal returns have been affected. That information was confirmed by Julie Miller, spokesperson for Intuit earlier today. IRS has not made any announcements; I have reached out to IRS for comment and will pass along information as soon as it becomes available.

In the meantime, to assist any customers who believe they are victims of tax fraud, Intuit has a dedicated toll-free number, 1.800.944.8596, with direct access to specially trained identity protection agents who will provide comprehensive support and filing assistance. You might note that’s the same number that Minnesota has provided to taxpayers. It is not a state-specific number. It is available to all potentially affected taxpayers.

In addition, Intuit will provide identity protection services and free credit monitoring, as well as provide access to all versions of its software or to the assistance of one of Intuit’s credentialed tax experts who will prepare taxes for affected customers at no expense.

How can taxpayers protect themselves? Be diligent. Some experts suggest changing online passwords for any accounts linked to software (including but not limited to bank accounts and email). If you have questions or suspect that you might be a victim of fraud, contact your provider and also notify your state’s tax department.

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