TurboTax Suspends State Tax Filing Service After Fraud Concerns

Barry Chin/The Boston Globe via Getty Images(NEW YORK) — TurboTax says it will temporarily stop processing state tax returns following growing reports of suspicious activity.

TurboTax’s announcement on Friday follows a move this week by Minnesota’s Department of Revenue, which stopped accepting tax returns submitted using TurboTax due to “potentially fraudulent activity.”

Authorities in Utah and Alabama issued similar warnings without naming TurboTax, saying they will stop accepting tax returns through “third-party” software.

“We’ve identified specific patterns of behavior where fraud is more likely to occur,” Brad Smith, Intuit president and CEO, said in a statement. Intuit owns TurboTax.

“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,” Smith added.

Intuit said its preliminary examination with security expert Palantir is still ongoing.

In a statement, the financial services software company said, “Intuit believes that these instances of fraud did not result from a security breach of its systems and that the information used to file fraudulent returns was obtained from other sources outside the tax preparation process.”

“Intuit will be working with the states today to begin turning transmissions back on,” the Mountain View, California-based company said. “Customers who have already filed their state tax returns using Intuit software during this temporary pause will have their returns transmitted as soon as possible. They do not need to take further action at this time.”

The announcement doesn’t affect the filing of federal income tax returns.

The Minnesota Department of Revenue said it’s still accepting returns filed with Intuit professional preparer products, which include Lacerte, Intuit Tax Online, and ProSeries.

“There has not been a breach of Department of Revenue systems,” the Minnesota’s government website states. “Our priority is maintaining the security of private taxpayer data and preventing fraudulent activity within our system. We have sophisticated technology in place to safeguard private taxpayer information.”‘

In 2013, Minnesota’s Department of Revenue issued a similar warning after discovering “multiple issues” with Intuit products that created problems for property tax refunds, education expenses and political contributions, tax expert and attorney Kelly Phillips Erb noted.

This is the second publicity wrinkle for TurboTax early in the 2015 tax season. Last month, the company increased the price of one version of TurboTax online, which caused its Amazon.com rating to plummet to one star out of five and an offer from H&R Block for customers to switch to the competitor.

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