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TurboTax shuts down, then restarts, after fraud alert

SAN JOSE, Calif. -- Just as the tax season is starting to bear down on us, do-it-yourself filers using Intuit's popular TurboTax learned Friday morning that the company halted work on all state tax returns after agencies discovered a spike in fra...

SAN JOSE, Calif. - Just as the tax season is starting to bear down on us, do-it-yourself filers using Intuit’s popular TurboTax learned Friday morning that the company halted work on all state tax returns after agencies discovered a spike in fraudulent returns.
And then hours later, Intuit said they had resumed the filings.
The Mountain View, Calif.-based company had put the brakes on processing the returns after receiving an alarming number of complaints from states about documents being filed using stolen personal data. In a statement, Intuit said it was taking a “precautionary step,” starting Thursday, of temporarily pausing its transmission of state e-filing tax returns.
But Friday afternoon, after working with its security experts, Intuit issued another news release, saying it had resumed e-filing of state income tax returns as of 3 p.m.
“Nothing is more important to us than the safety of our customers’ data,” said Brad Smith, Intuit president and chief executive officer. “We are taking this issue very seriously and from the moment it emerged it has been all-hands-on-deck. We’ll continue to remain vigilant, but I am more than pleased that we were able to resume
transmission for our customers within about 24 hours.”
Intuit said that after conferring with its security consultants, it “believes that these instances of fraud did not result from a security breach of its systems. As a result of that examination, which is ongoing, Intuit implemented targeted security measures to combat the type of fraudulent tax activity that it is seeing.”
The problem has not spread over to the federal level because the Internal Revenue Service reportedly has better online security systems in place. It was unclear which states had reported fraud cases.
Minnesota revenue officials stopped accepting tax returns from TurboTax on Thursday after hearing evidence of “potential fraud” from multiple Minnesota taxpayers.
Minnesota Department of Revenue Commissioner Cynthia Bauerly said people in her department had heard late Wednesday from two taxpayers who had attempted to file returns on TurboTax, but were instead notified that their returns already had been filed. The notifications came as soon as taxpayers signed on to start their returns.
Of the 267,000 Minnesota tax returns already filed, the department flagged “a couple thousand” returns that had used TurboTax, in order to review them. Deputy commissioner Terri Steenblock said the returns were flagged solely because they had used TurboTax.
Earlier Thursday, the Utah State Tax Commission released a statement saying their internal fraud detection systems had discovered 28 fraudulent returns by residents using third-party filers and that 18 states had similar problems.
They noted that some taxpayers, like those in Minnesota, had received a message that their returns already had been filed as they were attempting to do so using TurboTax.
Coming just one day after Blue Cross Blue Shield insurer Anthem said hackers had gained access to the Social Security numbers and other personal information of about 80 million people, news of the Intuit showdown was disconcerting to many of its customers.
“I’ve used TurboTax for years and this really concerns me,” said Arthur Kelly, 58, a computer scientist. “If someone files a fraudulent return in your name, which is a form of identity theft, it would be hard to straighten that out. The problem is there are more and more places that now have your Social Security number, so we’re all increasingly vulnerable to hackers.”
Intuit said that at least so far, there apparently was no security breach of its systems. Instead, the company believes personal information was stolen elsewhere and used to file returns on TurboTax. Still, customers like Kelly are worried.
“To fix a systemic problem like this is very difficult,” he said. “Because it’s a cat-and-mouse game: even as companies and even the IRS improve their security, hackers will keep coming back.”
In its own statement, the Internal Revenue Service said “it continues to accept and process tax returns and refunds, and the filing season has started successfully.” The IRS said “taxpayers should continue to file their tax returns as they normally would.”
In 2013, Minnesota ran into other problems with TurboTax - again, warning residents not to use it. Those problems appear unrelated, Steenblock said.
In that instance, several of TurboTax’s online forms - including 13 line items - were programmed incorrectly, leading to errors in the returns.
According to comScore, Intuit software captured almost 60 percent of the market for do-it-yourself electronic tax filers nationwide in 2012.
 
The St. Paul Pioneer Press contributed to this report.

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