The Real Lesson From the TurboTax Shutdown

Intuit, the company behind popular tax-filing software TurboTax, briefly suspended state tax return filing Feb. 5 as a fraud-prevention measure, as the company and some states noticed a spike in tax fraud reports. TurboTax’s state filing services resumed the next day, with multi-factor authentication as an added fraud-prevention measure, the details of which were not specified.

Intuit hasn’t released many details about the suspension, but a blog post from the company says an investigation with Palantir, a third-party security company, indicates there was no security breach of TurboTax users’ data. They’re linking the spike in fraud to the onslaught of data breaches that struck U.S. businesses last year — the most recent being a breach of health insurer Anthem, which exposed Social Security numbers.

So far, there’s little more to the Intuit/TurboTax story beyond what the company has said: that the suspension of services was a precautionary measure aimed at combatting fraudulent state tax returns (federal filings were unaffected, presumably because of national identity theft-prevention efforts). Intuit did not immediately respond to a request for comment from

Consumers and experts in the field want to know more about why this happened, but while we wait for the TurboTax-specific details to emerge, there’s one thing everyone can very clearly take away from this event: Tax-related identity theft is a huge problem and it’s getting worse.

It can be extremely difficult to know if your identity has been stolen. Prevention is practically impossible — for example, consumers caught up in the Anthem breach had no way of keeping their Social Security numbers out of thieves’ reach — but there are a handful of effective detection methods. Still, that generally requires someone attempting to fraudulently use your identity before you can stop them from going further.

The Lesson: File Early

With tax-related identity theft, it’s a race to see who files first: you or the thief. As far as fraud prevention is concerned, it’s in your best interest to file as soon as possible. Then again, this TurboTax incident involved people who were filing relatively early, and they still had their paperwork rejected, because someone had already used their information to file for a refund.

This all culminates in a grim outlook for consumers trying to protect their identities. There’s no sure way to prevent fraud, but you can take measures to decrease your vulnerability to identity thieves: Try to file your taxes as soon as possible, and monitor your credit for signs of unauthorized use of your identity. If someone opens an account or runs up debt in your name, your credit score will reflect that — you can get two of your scores for free every 30 days on — and you can also check your free annual credit reports for accounts you don’t recognize.

More on Income Tax:

Image: Photodisc

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