Intuit halts TurboTax filings after states spot mass tax fraud scheme

Accounting software maker Intuit has temporarily suspended the ability of its TurboTax software to electronically file US state income tax returns following reports of widespread suspicious activity.

"During this tax season, Intuit and some states have seen an increase in suspicious filings and attempts by criminals to use stolen identity information to file fraudulent state tax returns and claim tax refunds," the company said in a statement on Friday.

The move comes a day after the state of Utah first noticed the potential fraud and issued a news release [PDF] about it, prompting the state of Minnesota and the District of Columbia to both temporarily stop accepting tax returns filed using TurboTax.

"To this point, 28 fraudulent filings have been identified, though the Tax Commission has flagged 8,000 returns as potentially fraudulent," Utah's tax collection agency said. "Utah taxpayers who filed state income tax returns electronically prior to 2014 through third-party vendors are potentially affected."

The new scare comes hot on the heels of news that Anthem, the US's second largest health insurance firm, recently suffered a data breach that leaked sensitive information from the accounts of millions of customers – including data that could potentially be used to file fraudulent tax returns.

Intuit said the issue only involves state income tax returns and not federal returns filed with the Internal Revenue Service.

Currently 43 US states collect income tax on top of the taxes imposed by the federal government. Filing requirements vary by state but individuals must typically file both returns for a given year by April 15 of the following year.

Only TurboTax appears to be affected for now. National tax preparation chain H&R Block told USA Today that it has "no indication this issue exists" with its own online tax return services and that it's still processing both federal and state returns as usual.

Intuit says it's working with state governments to address the issue and that service should be restored at some point on Friday.

"We've identified specific patterns of behavior where fraud is more likely to occur," said Intuit CEO Brad Smith. "We're working with the states to share that information and remedy the situation quickly."

The company said any customers who have already filed state tax returns with TurboTax will have their returns transmitted to state governments "as soon as possible" once the issue is resolved.

Intuit is also offering free tax preparation, credit monitoring, and identity protection services to customers who believe they are the victims of tax fraud. ®