Individual Income Tax Insights: States Warn Taxpayers of Significant Increase in Fraudulent Returns


Imagine submitting your state return only to be told the state has already processed and issued your refund. Is it a simple matter of forgetfulness? Doubtful. Fraud is the more likely culprit, and such an alarming occurrence has been a reality for hundreds of taxpayers already this year.

File now. That is what many state departments of revenue are advising taxpayers amidst a significant increase in the electronic filing of fraudulent state returns. The earlier taxpayers are able to file their state returns, the less likely a fraudulent return could be submitted using their credentials.

Although tax return fraud is not a new problem, states are seeing a significant increase in fraudulent returns. The Montana Department of Revenue issued a news release informing taxpayers that it has already blocked 57 fraudulent returns since its tax season opened Jan. 20, whereas at this same time last year it had only blocked 17. Although the majority of fraudulent returns submitted throughout the states have been through the tax self-preparation software TurboTax, Montana noted that it is also seeing other commercial software being used.

TurboTax temporarily suspended its acceptance of state returns in February after a substantial amount of fraudulent returns were detected. It has since reopened state filing, but is now warning taxpayers of subsequent scam emails that may be associated with the breach.

The Minnesota Department of Revenue announced ­it has stopped accepting all tax returns submitted using TurboTax. Additionally, the Alabama Department of Revenue issued a news release confirming that it has flagged 16,000 state returns as suspicious of fraud, and Utah has flagged 8,000 returns as potentially fraudulent and reports that at least 18 other states have been affected by the increase in fraudulent activity.

States are not discouraging electronic filing or the use of self-preparation software. Taxpayers can be proactive in protecting their identity and refund by updating software applications to newer versions, ensuring a secure internet access, changing all passwords, and being leery of any emails received purporting to be in regards to tax return filings or issuance of refunds.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What additional precautionary measures could states take to protect taxpayers from the filing of fraudulent returns?

For more information regarding individual filing requirements, see the Individual Income Tax Navigator.

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