Class Action: TurboTax Exposed Americans to Massive Tax Fraud

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TurboTax maker Intuit, Inc. was hit with a data breach class action lawsuit in a California federal court for allegedly failing to protect its customers’ highly sensitive information from being compromised, leading to the filing of fraudulent tax returns.

Plaintiffs Christine Diaz of Ohio and Michelle Fugatt of Alabama both claim in their TurboTax class action lawsuit that they have been victims of tax fraud as a result of negligence on the part Intuit.

Diaz claims that she used TurboTax to file her 2010 state and federal tax returns in 2011. Even though 2011 was the last time she had used the tax preparation software, she “learned that there had been fraudulent state tax filings purportedly on her behalf in Michigan, Missouri, Ohio, and Oklahoma, and a federal tax filing with the IRS.”

In addition, “in March 2015, approximately four years from the last time Plaintiff Diaz utilized TurboTax, Plaintiff received a bill from TurboTax for $242.75 for the purported e-filing of 2014” tax returns.

At this time, she and her husband had not yet filed their 2014 tax returns.

“Further investigation revealed that someone had fraudulently filed these tax returns purportedly on Plaintiff Diaz’s behalf through TurboTax,” the TurboTax class action lawsuit says. The tax filings apparently took place on Jan. 26.

Due to this tax fraud, Diaz claims that she and her husband have spent at least 30 hours dealing with the fallout from this tax fraud.

“Further, because of this fraud, Plaintiff Diaz is no longer eligible for electronic filing of her tax returns. The result is that tax refunds will be delayed for a significant period of time,” the TurboTax tax fraud class action lawsuit claims.

And she claims that she is now “at a heightened risk of further identity theft requiring her to pay indefinitely for on-going credit monitoring.”

Fugatt says that she “has never been a customer of TurboTax” and that “she has not at any time provided information to TurboTax or authorized it to file any tax returns on her behalf.”

However, the Alabama woman learned on March 3 “that a fraudulent federal tax return had been filed under her name, when she received a bill from Intuit seeking payment for using the TurboTax services to file the tax return.”

Like Diaz, “plaintiff Fugatt had not yet filed her 2014 tax return,” and she also has spent a significant amount of time trying to rectify the situation and is also “no longer eligible for electronic filing of her tax returns.”

At the beginning of February, Intuit reported that a “small handful of states” were having more suspicious tax filings than usual. Due to this, TurboTax was not able to transmit any state e-filings on Feb. 5. It turned out that 19 states were noticing an increase in suspicious activity related to tax filings.

“Alabama tax officials reported identifying as many as 16,000 suspicious tax returns through TurboTax, whereas Minnesota tax officials had stopped accepting individual tax returns transmitted through TurboTax,” the TurboTax tax fraud class action lawsuit says.

“Massachusetts and Vermont officials announced that they had temporarily stopped issuing tax refunds in order to avoid issuing fraudulent tax refunds and to ensure that the refunds reached the proper recipient,” the class action lawsuit explains.

“Additionally, Utah tax officials announced that all potentially fraudulent tax returns identified in the state had been filed through TurboTax,” it adds.

“After TurboTax suspended e-filing state tax returns two former security employees of Intuit, one of which has filed an official whistleblower complaint with the SEC, reported that the company had made millions of dollars in knowingly processing state and federal tax refunds filed by cybercriminals,” according to the TurboTax class action lawsuit.

Diaz and Fugatt claim that “as a leader in the tax preparation software market, assisting millions of American taxpayers in filing their tax returns, Intuit is in the business of maintaining its customers’ most private of information.

“Accordingly, Intuit has an affirmative duty to take all reasonable measures in protecting customers’ data and safeguarding it from cybercriminals,” but the two TurboTax tax fraud victims “allege that Intuit failed to fulfill its legal duty to protect its customers’ sensitive personal and financial information by allowing identity thieves to file thousands or even millions of fraudulent tax filings.”

Intuit is under investigation by the FBI, IRS, Senate Finance Committee, the Justice Department, and the Federal Trade Commission.

Diaz and Fugatt are looking to represent two classes: a fraudulent tax return filing class, for those who had “fraudulent tax returns filed in their name through TurboTax;” and a data breach victims class for those “whose data was provided to Intuit through TurboTax and, while that data was being held by Intuit, subsequently accessed by unauthorized persons.”

They claim that Intuit has violated California’s unfair competition laws, California’s Customer Records Act, and is guilty of aiding and abetting fraud, negligent enablement of third party imposter fraud, negligence, and breach of contract.

The plaintiffs are represented by Richard D. McCune of McCuneWright LLP, Michael Sobol of LIeff Cabraser Heimann & Bernstein LLP, Joha A. Yanchunis of Morgan & Morgan, Steven W. Teppler of Abbott Law Group PA and Joel R. Rhine of Rhine Law Firm PC.

Counsel information for Intuit was not immediately available.

The TurboTax Tax Fraud Class Action Lawsuit is Christine Diaz and Michelle Fugatt et al v. Intuit Inc., Case No. 5:15-cv-01778, in U.S. District Court for the Northern District of California.

UPDATE: On Apr. 1, 2016, Intuit asked for arbitration in this class action lawsuit arguing that the plaintiffs agreed to arbitrate disagreements through its Terms of Service.

UPDATE 2: On Oct. 4, 2018, an Intuit class action settlement has been preliminarily approved, resolving claims related to hacker access on the TurboTax filing platform which affected about 915,000 victims.