According to identify theft data from the Federal Trade Commission, tax fraud has increased in recent years (surprise, surprise). Last year, the number one consumer complaint in how an identify theft victim’s information was misused was tax or wage-related fraud.

And, this year, a new method of online tax fraud was discovered. Often times, tax fraud criminals will file a tax return in a victim’s name in order to collect the victim’s refund. But, in February, between 24-40 taxpayers reported that when they logged into TurboTax®, they noticed their state return was already processed.

In early March, Intuit® CEO, Brad Smith, and other tax software leaders met with the IRS to address the problem.

How Taxpayers Turned into Tax Fraud Victims

They explained that 24 of those victims used TurboTax and all of these victims had elected to have their filing fees taken from their refunds in a refund transfer. A recent AccountingToday article explains what happens next in this process, “After filing fees are withdrawn, refunds are transmitted to taxpayers with a deposit by Tax Products Group, owned Green Dot Corporation, a bank that works with tax-preparation firms. In these newly reported instances, taxpayers’ personal information is obtained so the refunds can be sent to another bank account.”

So, TurboTax customer’s information wasn’t breached within TurboTax. Their personal information was dug up elsewhere. It’s also important to note that this tax fraud case only affected state returns, not federal returns.

Still, Intuit has since increased TurboTax’s security measures, restored the ability to use its software to e-file state tax returns, and offered to pay the victim’s tax refunds.

The Minnesota Department of Revenue has lost trust in TurboTax. The department no longer accepts tax filings submitted electronically using the software due to an incident where two state taxpayers logged into TurboTax to file and were told their filings were already made. Now, the state is evaluating thousands of state filings sent electronically.

Taking Precautions

Taxpayers can take one precaution against tax fraud: create an account at irs.gov before criminals create an account in your name and steal your personal information (social security number) and tax data.

In mid-March, federal and state tax officials recommended four ways to fend off fraud and presented them to the Senate Finance Committee:

1. Make prepaid debit cards easier to identify – In many instances, identity thieves use prepaid debit cards to collect tax refunds. Prepaid debit cards are difficult to trace and the money is easily transferable.

2. Require employers to file W-2s with tax agencies earlier – Employers are required to send their employee’s W-2 forms by January 31, but are not required to send the IRS and Social Security Administration until March 31. This makes it difficult for the IRS and state tax agencies to make sure the person claiming the refund is using correct information, for example, using this year’s W-2 instead of last year’s.

3. Don’t allow third-party filing fees to be deducted from a refund – When this happens, the criminals have nothing at risk in the transaction. The state is out of a refund and software programs like TurboTax get paid, too.

4. Educate the public and spread awareness – Phone scams that involved tax fraud criminals posing as IRS agents were the number one scam of 2015. Their largest target? Senior citizens. Educating the public on this serious issue will help prevent future tax fraud.

If you think your client is a victim of tax fraud or identity theft, read the IRS’ Tax Preparer Guide to Identity Theft, which lists steps you can take in order to report the case.