A Taxing Ordeal Online

Well, I hope you weren't planning to do your 2014 taxes this weekend using TurboTax.  You know, like I was.

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.

Alabama, Minnesota, and Utah state tax offices have already released statements, and tax software company Intuit has now put all state e-filing on hold.

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.

In other words, Intuit believes that fraudsters who have obtained SSNs and addresses from sources other than TurboTax are filing bogus tax returns in order to get bogus tax refunds.  All that is fine and great until the actual person tries to file their income tax information, and they discover that there's already an income tax return filed for them that year.

It gets ugly, fast.  While this isn't so much of a problem with federal returns (as they started cracking down on that a couple years ago) states are behind the curve, hence this year's state e-file return fraud alerts.

Hopefully Intuit will get this looked at soon.