Advisers wary but cool in light of TurboTax refund debacle

Keep calm, but stay vigilant when filing your taxes

Feb 17, 2015 @ 3:52 pm

By Darla Mercado

There's plenty of public concern over the deluge of phony tax returns being filed through TurboTax, but advisers are keeping cool heads for the time being.

The popular tax software, a product of Intuit Inc., has been making headlines after 19 states reported possible fraudulent activity earlier this month. State tax departments had received phony returns and some jurisdictions temporarily stopped issuing refunds to ensure fraudsters aren't receiving taxpayers' cash.

In some cases, the phony filings used information pulled from TurboTax clients' 2013 returns, according to a report from MarketWatch.

Even the House Ways and Means Committee and the Senate Finance Committee are getting involved, probing the issue of phony tax returns. The Government Accountability Office notes that the IRS estimates it paid some $5.2 billion in refunds stemming from identity theft in the 2013 filing season, and that number could rise to $5.8 billion once the IRS updates its analysis.

In the meantime, financial advisers are staying vigilant on behalf of clients who prepare their own returns.


Advisers pointed out that though most of their clients use tax preparers and accountants to handle their annual filings, a number of them have horror stories of identity theft and refunds that end up in the wrong hands.

Lauren Prince, a financial planner at Prince Financial Advisory, had one such client whose Social Security number was compromised. When the client filed her tax return, the return was rejected by the IRS, which told her that it already had received it. Worse yet, the client was owed a refund. “It took her a couple of years to get her money and have it straightened out,” Ms. Prince said.

Gilbert Armour, a rep with Sagepoint Financial Inc., also had a client whose tax return was rejected by the IRS on the grounds that it had already received the client's return. Indeed, the one on file was a phony that was filed by a fraudster. “I suspect it wasn't a tax filing software problem, but some kind of leak, or they had obtained the data some other way,” Mr. Armour said.

The leak led to a whole lot of hassle for the client, who was required to file the old fashioned way the following year: On paper and via snail mail. And for the following two years, the client had to submit a special code on the return, Mr. Armour said. “It was two to three years before everything was back to normal,” he added.


The recent spate of data breaches at major financial services firms has left advisers less surprised by headlines of phony tax returns. But it's also made them more skeptical of using certain applications to share documents with clients. “This year I started using a portal with Citrix technology and that's how I share tax returns,” Dan Olson, principal of Olson Tax and Financial Planning, said. “I don't trust Google Docs, Google Drive and Dropbox.”

Sam McPherson, president of McPherson Financial Advisors, has clients who use TurboTax to file their returns and he himself is a customer, but he is reserving judgment until there's more information on the source of the breach.

“My ultimate concern is that this seems to be more and more part of the landscape, as we progress with putting more of our information online,” Mr. McPherson said. “I'm not sure that any one particular company can guard against it. It seems to be an evolving crisis.”


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