A lawsuit has been filed in the Federal District Court for the Northern District of California by Christine Diaz and Michelle Fugatt against Intuit, the maker of TurboTax, the popular tax preparation software used by so many people to file both state and federal income tax returns.  Christine Diaz had not used TurboTax since 2011, however someone had managed to access her online TurboTax account to file state income tax returns in Michigan, Missouri, Ohio and Oklahoma as well as a federal income tax return using her Social Security number and name.  Interestingly, the other plaintiff, Michelle Fugatt, had never used TurboTax, but someone managed to set up an account in her name and file an income tax return using her name and Social Security number through TurboTax.

The lawsuit, which will most likely seek class action status to represent many more victims of income tax identity theft tied to TurboTax, alleges that TurboTax has negligently poor security which caused the plaintiffs to become victims of income tax identity theft.  TurboTax has indicated that about 60% of the fraudulent income tax returns filed using TurboTax software used personal information including Social Security numbers stolen from places other than TurboTax to set up TurboTax accounts to file phony income tax returns.  The remaining 40% of fraudulent income tax returns using TurboTax, the company says, can be traced back to identity thieves who have been able to hack into the accounts of TurboTax customers and gain access to personal information including past tax returns and then use that information to file phony tax returns.

Presently the FBI is investigating the tie between income tax identity theft and TurboTax.

TIPS

Electronic filing has been a boon to legitimate taxpayers looking for a convenient way to file their income tax returns and more quickly get their refunds.  However, it has also been a boon to identity thieves.  In 2010 there were 500,000 fraudulent income tax returns filed electronically with the IRS, however, this number rose to close to 2 million in just three years and it shows no signs of slowing down.  Fraudulent income tax returns largely filed electronically cost the IRS and, in turn, the American taxpayers 5.8 billion dollars in fraudulent refunds paid by the IRS to income tax identity thieves.

TurboTax has recently added new security provisions including a requirement that TurboTax customers provide a code that TurboTax sends to their smartphone or email address in order to access their accounts from a computer other than their home computer

However, much of the security problem is caused by TurboTax users themselves.  Too many people use the same user name and password for all of their accounts so if this information is stolen by hackers from another account of the victim, it can be used to access their TurboTax account.  In addition, many taxpayers become victims because they are too careless in protecting the privacy of their Social Security number either on their computer or in paper documents.

Finally, a particularly safe way to use TurboTax, so long as your computer is protected by good anti-malware and anti-virus software is to use the desktop version of TurboTax rather than the online version so that TurboTax never has a record of your information.