Author's notes:
Intuit has announced that TurboTax has resumed e-filing of state income tax returns. See this post for more information.
Original story has been updated to include statements from
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
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 later released the following statement addressing fraud-related concerns:
The IRS has a long tradition of working closely with the software industry and state tax administrators to combat refund fraud. We remain in close contact with these groups.
Preventing and detecting identity theft and refund fraud remains a top priority for the IRS. We have added and strengthened protections in our systems this filing season, and we continue to make important progress in stopping identity theft and other fraudulent refunds.
The IRS continues to accept and process tax returns and refunds, and the filing season has started successfully. Through Jan. 31, the IRS had accepted more than 14 million returns and issued 7.6 million refunds.
Taxpayers should continue to file their tax returns as they normally would.
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.
It's important to note that as of now, this issue is only being reported by taxpayers using TurboTax. For everybody else, it's business as usual. I reached out to H&R Block, the nation's #2 tax software company, and they offered this statement:
H&R Block is aware of the situation concerning potentially fraudulent state tax returns e-filed through software programs provided by at least one other company. We have no indication this issue exists with H&R Block online state returns. H&R Block continues to file state and federal returns as usual.
H&R Block has sophisticated monitoring and quality assurance methods in place. Importantly, our procedures require an accepted e-filed federal return prior to transmitting a state e-filed return. This is one of our many controls to help prevent fraud.
Again, we are open for business and our customers can continue to file both their federal and state tax returns.
TaxAct also made the following statement available:
TaxACT is aware of concerns about potentially fraudulent state returns being e-filed. We are not seeing similar activity in our proactive monitoring, and we will continue to partner with state agencies and the IRS to prevent fraud.
Taxpayers can file state and federal returns as usual with TaxACT. As always, we advise customers to use strong passwords and check email for confirmation of account activity. If you suspect you may be a victim of fraud, please contact TaxACT and your state agency immediately.
Liberty Tax has also issued a statement, announcing that it will offer free state tax return preparation in participating offices throughout the United States to any TurboTax customer unable to file his or her state return using TurboTax online software. Taxpayers can go to www.LibertyTax.com to find the office nearest them.
As of this afternoon (Friday, 2/6), states confirming an uptick in fraudulent activity include Minnesota, Alabama and Utah, as noted above. Also confirming increased levels of fraud are South Carolina and New York; the latter reported a "small number of returns" which appear to be part of this scheme.
States that have confirmed that there are no changes or problems with fraudulent activity include California, Florida, Indiana, Iowa, North Carolina, and Tennessee.
Additional updates will follow.
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 notify your state's tax department.
