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TurboTax halts e-filing for state tax returns amid reports of fraud

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We're not far into tax season, but numerous US states are already reporting a big increase in suspicious return filings, another reminder of the escalating problem that tax return fraud has become. Alabama, Utah, and Minnesota have all issued warnings in recent days, with most states directing blame for the sudden uptick at third-party tax filing software. "The fraudulent filings originate from data compromised through a third-party commercial tax preparation software process," said Alabama's Department of Revenue. And when you're talking about third-party tax software, there's no bigger name than TurboTax, which holds 60 percent of the market according to Forbes. To address the issue, TurboTax is pausing all e-filing for state returns — but some states didn't wait around for that.

Minnesota has stopped accepting TurboTax's e-filing for state returns altogether, pointing to fraud concerns as the pressing reason. In a note on its website, the Minnesota Department of Revenue said:

Some Minnesota taxpayers have recently found that when they log in to TurboTax to file their tax return, they see that a return has already been filed. Due to this potentially fraudulent activity, we have stopped accepting tax returns submitted using TurboTax.

That worrying message about already-filed returns has also been seen in Utah. Intuit, TurboTax's parent company, has acted quickly to examine what's happening. Forbes reports that Intuit is working with security specialist Palantir and is so far rejecting the idea that its own systems have been compromised or breached in any way. Rather, the company thinks fraudsters are finding the sensitive information necessary to file returns elsewhere. Once they've got that private data, thieves file a tax return on your behalf and steal the money that should be going in your pocket. "We understand the role we play in this important industry issue and continuously monitor our systems in search of suspicious activity," said CEO Brad Smith.

TurboTax says its in communication with all states that are reporting heightened fraud, and effective yesterday it's temporarily halting all e-filing for state tax returns. That security precaution is expected to be very brief, however; Forbes says Intuit is working with states to get things switched back on as early as today. Federal e-filing is completely unaffected and has continued on as normal. And some states are still accepting filings from Intuit's professional-grade software, but if you're having trouble filing your state return with TurboTax on your phone, now you know why. For those who filed during the pause, there's nothing else to do; Intuit says it will work to process your return as soon as possible.