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Is It Too Risky To File Your Taxes With Software Like TurboTax?

This tax season has gotten off to a rough start for many taxpayers that utilize do-it-yourself (DIY) software to file their returns. Here’s the scenario, you use online tax software such as TurboTax to file your tax return every year. However, this time around, when you log into your account to file your tax return, you receive a message that your return has already been filed. This is the frightening scenario that is now impacting some taxpayers and this could just be the tip of the iceberg. An estimated 55 million U.S. returns are filed each year utilizing tax software. Are you at risk?

tax-filing-identify-theft-fraud-turbotaxWhat do we know so far?
We are certain that some taxpayers have noted that their personal information was used to file fraudulent tax returns. The suspicious activity was detected by the Minnesota State Department of Revenue and other states have noted similar behavior. The common thread throughout all of the reports is that the fraudulent returns were filed with TurboTax software. As a result, Intuit, the maker of TurboTax, halted the transmission of state returns for about 24 hours. Intuit has since included additional security measure in their tax filing process to prevent fraud. As of now, the other large tax software providers such as H&R Block and TaxACT have not reported the same unusual activity.

Was there a security breach?
At this time, this is the big unknown. The FBI has started an investigation and Intuit has stated that they do not believe that their computer systems have been compromised. Furthermore, Intuit is working with a third party security firm, Palantir, to investigate the fraudulent activity further. The explanation that Intuit has given thus far is that the activity is the result of phishing email scams and possibly a breach of an outside third party database unrelated to Intuit.

Who is at fault?
Intuit’s explanation is certainly plausible. There are many sophisticated email phishing scams and other ways for hackers to access personal information. However, we are concerned that it appears as though the scheme targeted only TurboTax and none of its competitors.

Should I reconsider filing with tax software?
That’s a question only the taxpayer can answer. The risk for fraud and identify theft has always existed with any form of tax preparation. Having said that, the risk is certainly greater with online tax software than it is with a tax professional. Furthermore, as is the case with almost every online service, users must agree to the terms of service which disclaims TurboTax from being responsible in the event of fraud. This means that if you are a victim of fraud and another party filed your tax return for you, you’re on your own in resolving the matter.

Isn’t tax software the cheapest and fastest way to file?
Yes. The fee for filing online with tax software will almost always be less than hiring a tax professional. However, there is more risk with filing online and there are tax compliance and planning limitations with these programs. A software program simply cannot replace a CPA or Enrolled Agent. Still, if you do decide to continue to file online or on paper, there are additional security measures to take. You may want to consider obtaining an Identity Protection PIN (IP PIN) from the IRS. This process can take months to process, but it can provide added protection. Once the pin number is issued, it becomes your personal password that must be included on your tax return or the IRS will not process the return.

More tax questions? Browse answers or ask tax filing questions online. You can also find accountants online here.

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