S.C. probes potentially fraudulent tax returns

AP Photo/Paul Sakuma A customer looks at a copy of TurboTax on sale at a Costco store in 2013. TurboTax says it has temporarily stopped processing state tax returns due to an increase in fraudulent filings.

South Carolina’s Department of Revenue was examining a “significant number” of potentially fraudulent tax returns Friday, after a nationwide spike in tax fraud attempts prompted the company behind popular tax-preparation software TurboTax to temporarily stop transmitting state returns.

“Our people started to notice some inconsistencies and patterns about the same time the story broke nationally,” said S.C. Revenue Department Director Rick Reames III.

Reames said the state may review a large number of returns, erring on the side of caution, and some refunds could be delayed as a consequence. Reames stressed that the Revenue Department’s systems and data have not been breached, as they were in 2012.

The issue facing South Carolina and other states involves identity thieves who attempt to file tax returns in other people’s names and claim their refunds. Then, when a taxpayer files a legitimate return, it could get rejected because a return already has been filed in that person’s name.

“We find fraudulent returns every year,” Reames said. “It isn’t really an unusual event, but this uptick that’s been detected is connected to TurboTax.”

“We don’t know how many taxpayers will be affected,” he said.

TurboTax is the country’s most popular do-it-yourself tax preparation software. Intuit, the company behind TurboTax, stopped electronically filing state tax returns Thursday and was working with security company Palantir to investigate. The company said there was no security breach of its systems, and it believes personal information was stolen elsewhere and used to file returns on TurboTax.

Ashley Thomas, director of communications for the Revenue Department, said the agency has had an anti-fraud unit for years, and the department has “enhanced that effort, to respond to this.”

South Carolina and Intuit have each created hotline numbers for taxpayers with concerns. South Carolina taxpayers who have already filed a state income tax return can check its status online, at sctax.org, or call 803-898-5300.

Intuit spokeswoman Julie Miller said there haven’t been issues with federal returns because the IRS has implemented stronger fraud detection policies.

In August the U.S. Government Accountability Office reported that for the 2013 tax year, “the Internal Revenue Service estimates it paid $5.2 billion in fraudulent identity theft refunds” and prevented $24.2 billion in attempted fraud.

Miller linked the problem with state tax returns to recent security breaches at large companies. Just this week, Blue Cross Blue Shield insurer Anthem Inc. said hackers gained access to the Social Security numbers, names, addresses and other personal information of about 80 million people. That followed security breaches at JPMorgan Chase and several retailers, including Home Depot and Target.

“You have a pretty rich pool of data out there in the world,” Miller said.

Intuit said state tax returns already filed when the halt began Thursday will be transmitted as soon as possible. Consumers can still use TurboTax, and the company will file the state tax returns when the halt is lifted. The company expected to start processing state returns again Friday with increased fraud protections, Miller said.

South Carolina taxpayers who have concerns may call the Revenue Department at 803-898-7638 on weekdays until 5 p.m. Intuit TurboTax has set up a hotline as well, at 800-944-8596.

The Associated Press contributed to this report.