TurboTax halts state filing amid fraud reports

Taxpayers using TurboTax to file their returns this year are running into more of a headache than usual: The tax-preparation software company has halted filing state returns.

The cause is an uptick in fraudulent filings, which TurboTax is now investigating with security company Palantir. TurboTax, which is owned by Intuit (INTU), said it doesn't believe the fraud included a breach of its security systems.

Customers can still file their federal income tax returns, but the state returns are on hold for now for those customers who are required to file state income taxes. The problem involves some fraudsters filing fake tax returns for residents, using stolen identity information. That's a crime that has been gaining popularity with criminals, with the IRS noting that it investigated almost 1,500 cases in 2013, a jump of 66 percent from the previous year.

"We understand the role we play in this important industry issue and continuously monitor our systems in search of suspicious activity," said Brad Smith, Intuit president and chief executive officer. "We've identified specific patterns of behavior where fraud is more likely to occur. We're working with the states to share that information and remedy the situation quickly. We will continue to engage them on an ongoing basis in an effort to stop fraud before it gets started."

Filing fraudulent claims is the type of activity that security experts fear the fraudsters behind Anthem's data breach this week might be planning, as CBS MoneyWatch reported on Thursday.

Inuit said any customers who believe they are victims of fraud can call 1-800-944-8596 to talk with a trained identity protection agent. Intuit will also provide identity protection services and free credit monitoring, it said.

The halt comes after some states,including Alabama, noted a rise in fraudulent tax returns for the 2014 filing season.