Two victims of identity theft have sued Intuit, the maker of TurboTax, claiming that poor security measures contributed to a possible spike in tax fraud this year.
In the lawsuit, which was filed Monday in the Northern District Court of California, the two taxpayers accused the company of not taking enough steps to protect customers’ data or to stop criminals from using that information to file fraudulent tax returns and steal tax refunds. The victims also say the company did not do enough to let taxpayers and customers know when their information was used to file a fraudulent return.
One plaintiff, Christine Diaz, said she hadn’t used TurboTax since 2011, when she used the online version of the software to file a joint return for her and her husband. But in March, before she had filed this year’s tax return, she said that she received a bill for $242 from TurboTax for supposedly filing a federal tax return through the software, along with state returns in Michigan, Missouri, Ohio and Oklahoma.
The other plaintiff, Michelle Fugatt, alleged that she received a similar bill in March despite having never used TurboTax. Because of the suspicious return filed in her name, Fugatt now has to file by paper and wait longer for her tax refund, according to the complaint.
Richard McCune, a lawyer representing the taxpayers, said his firm would seek class-action status down the line to represent other tax victims — both TurboTax customers who had their personal information stolen from TurboTax and non-customers who had their information stolen elsewhere but had fake tax returns filed in their names through TurboTax.
Earlier this year, Intuit said that about 60 percent of the suspicious tax filings submitted through its software were from thieves who found people’s personal information elsewhere but used the software to file a phony return. About 40 percent of the suspicious filings came from fraudsters who hacked into existing customers’ accounts, giving them access to people’s prior tax returns and other sensitive information.
Total damages sought through the lawsuit will depend on how many people were affected, how taxpayers’ personal information was obtained and if fraud victims lost money because of the fraud, McCune said.
“Part of the important process for us is trying to figure out how our clients’ information was accessed and used,” he said, “so we can do our part to put a stop to that.”
TurboTax temporarily halted transmitting state tax returns in early February after a spike in suspicious tax returns. It resumed the service about 24 hours later, with additional security measures. Shortly after, a whistleblower complaint was filed by a former employee who alleged that the company did not do enough to stop suspicious filings or to protect customers’ information.
The fraud received the attention of Congress, the Justice Department and the FBI, which launched probes to determine the cause of the fraud. The IRS called on Intuit and other tax preparation companies to work with state tax authorities to come up with a list of changes that could help reduce tax fraud in time for the next tax season.
Intuit has denied the allegations and has called for standards clarifying how much tax preparation software providers can do to prevent tax fraud. “We recognize that the industrywide problem of tax fraud has increased this tax season and our focus remains on playing our part in fighting it,” the company said in a statement. “We intend to defend ourselves vigorously in the appropriate forum.” It added that it does not comment on litigation.