Following a sharp increase in suspicious state income tax returns e-filed across the country filed using TurboTax, Intuit temporarily halted e-filing of state income tax returns with its popular tax software package on February 5, 2015. During the suspension in service , Intuit conducted an emergency investigation of the suspicious e-filed state tax returns through Palantir, a third-party security specialty firm. As a result of this investigation, Intuit declared that there had been no breach in its security system and resumed e-filing state tax returns with TurboTax the next day.
Intuit also established a toll-free number (800-955-8596) staffed with specially trained identity protection agents to provide filing assistance and comprehensive support to affected tax filers. Intuit also promised to provide tax filing assistance for no charge for affected customers. Customers whose state income tax returns had been compromised would also receive free credit monitoring and identity protection services.
Liberty Tax Service issued a statement promising free e-filing of state tax returns in its participating offices to all TurboTax customers who are unable to file state income tax returns using the software. (However, Liberty Tax Service has had its own privacy concerns. The tax preparation company was fined more than 1 million dollars resulting from complaints filed by the state of California in 2007 regarding privacy of its customers’ data. Liberty has since instituted sweeping changes in how its franchisees handle sensitive taxpayer information.)
The Extent of the Breach
Specifically, State of Utah tax authorities claimed that as many as 8,000 suspect state income tax returns were filed using TurboTax software. The State of Alabama Department of Revenue reported that 16,000 suspicious state income tax returns had been filed using third-party tax preparation software. Two tax filers in Minnesota using TurboTax software reported that fraudulent returns have already been filed in their names. Small numbers of state tax returns for New York State and South Carolina filed using TurboTax software have also been reported as suspicious.
Federal income tax returns were reportedly not affected by the breach, and the IRS issued a statement declaring that e-filed returns would continue to be accepted. Likewise, California, Florida, Indiana, Iowa, North Carolina and Tennessee have also reported no suspected fraudulent activity involving e-filing of state income tax returns. But the Minnesota Department of Revenue immediately imposed a block on e-filed state income tax returns completed using TurboTax software. Other states have issued warnings to their citizens concerning possible hazards associated with e-filing tax returns using third-party tax preparation software.
Alternatives to TurboTax
Although as of this writing, Minnesota is the only state to have issued an outright ban on tax returns filed using TurboTax software, many taxpayers may be understandably hesitant about using that particular software package. Fortunately, there are alternatives that still allow e-filing of state income tax returns. In some cases, taxpayers may even be able to file their state tax returns for free.
Commercial Tax Preparers: H&R Block reported that there were no recorded instances of suspicious state income tax returns filed by its services or software, and represents an option for filing state income tax returns. Jackson Hewitt also has tax preparation offices located across the country. Having tax returns prepared by an individual minimizes the potential exposure of sensitive personal and financial information to unauthorized access, but it’s a relatively pricey option.
Alternative Tax Preparation Software: Although TurboTax is the most popular tax preparation software package, it is not the only game in town. TaxAct reported that here had been no suspicious activity associated with its software preparation packages. Other well-regarded tax preparation software packages include TaxSlayer, H&R Block, Jackson Hewitt, FreeTaxUSA.com and eTax. Nearly all tax preparation software packages impose an extra charge for preparing state income tax returns, but the costs are much lower than those for in-person tax preparation.
State Department of Revenue Websites: For taxpayers with really tight budgets, or whose state income tax returns are simple, state revenue department websites may provide an option for e-filing – many provide free filing of income tax returns for their residents. One potentially major drawback: state revenue department websites provide bare bones resources. There is none of the hand-holding offered by commercial tax preparers or the advice, tips and support provided through commercial tax preparation software packages. On the other hand, it’s tough to beat the price.
How Taxpayers Can Protect Themselves
Three words: strong, unique passwords. Many experts recommend unique passwords for every online program or service, with a master password to make it easier to keep track. It’s also not a bad idea to change any passwords associated with tax preparation software, including email and online banking, if there is even the slightest suspicion of unauthorized activity. Taxpayers whose financial or personal information may have been compromised should contact their tax preparation providers and the department of revenue for their states immediately.
Check out SuperMoney’s list of Tax Preparers reviewed, so you can pick and choose the one you like.