Minnesota stops taking TurboTax returns due to possible fraud

Minnesota has stopped accepting tax returns filed through TurboTax, a popular tax preparation software, because of possible fraudulent activity.

Just as tax season is ramping up, Revenue Department officials made the urgent announcement late Thursday after two taxpayers reported that they had logged into Intuit's TurboTax to file but were advised a return had already been filed. Because it could indicate fraud, state officials are blocking new TurboTax returns from coming in. They also are reviewing a "couple of thousand" returns that have already been filed using TurboTax.

"If we identify a problem, we will contact the taxpayer," said Revenue Commissioner Cynthia Bauerly.

Meanwhile, TurboTax says it has temporarily stopped processing state tax returns due to the increase in fraudulent fillings. Intuit Inc., the company behind the popular tax preparation software TurboTax, said it is working with security company Palantir to investigate the problem. So far, Intuit says there was no security breach of its systems. Instead, it believes personal information was taken elsewhere and used to file returns on TurboTax.

Intuit says state tax returns already filed since Thursday will be transmitted as soon as possible. Users can still submit their federal income tax returns.

Utah state tax officials also announced Thursday that they have discovered 28 fraudulent filings from third-party vendors. Some taxpayers there also reported logging into TurboTax to file and then getting a message that their returns already had been filed.

Utah officials said 18 other states have identified similar problems.

Minnesota Revenue Department officials said they were made aware of the issue with TurboTax on Wednesday night and "worked around the clock" to investigate the problem. They will continue to accept returns filed with Intuit professional preparer products, including Lacerte, Intuit Tax Online and ProSeries.

Bauerly said the Department of Revenue systems have not been breached and that the state has a "robust fraudulent protection system in place."

Bauerly said her department has contacted Intuit and requested information on their security solutions and any other issues the company has discovered, along with solutions to resolve them.

Efforts to reach Intuit for comments Thursday night were not successful.

The sudden halt to TurboTax-filed returns could cause many to change how they file 2014 income tax returns. With nearly 30 million customers nationwide, TurboTax accounts for 60 to 65 percent of the market.

As of Wednesday, revenue officials said about 267,000 returns had been filed — about 10 percent of what they expect from Minnesotans this season.

The Associated Press contributed to this report.

marylynn.smith@startribune.com 612-673-4788