Recent flood of fraudulent tax returns is the work of "a criminal gang
Wave of Fake Federal and State Tax Returns Filed, Experts
Say
By Herb Weisbaum
The recent flood of fraudulent tax returns -- both state
and federal -- is the work of "a criminal gang, possibly working outside
the country," a leading cyber security expert told NBC News.
Haywood Talcove, CEO for government solutions at
LexisNexis, believes the gang is using stolen user names and passwords to gain
access to the accounts of people who use online tax preparation software.
"This is potentially the most serious breach of
personally identifiable information in the history of our country,"
Talcove said. "The tax form is the mother lode of personal
information."
Armed with this stolen information -- Social Security
number, date of birth, dependents, employer and adjusted gross income -- the
thieves can file bogus state and federal income tax returns. If they can file
before you do and their fake return makes it through the system, they can steal
a sizeable refund.
The IRS says that it is working with the software
industry and with state tax officials to battle fraud. "Preventing and
detecting identity theft and refund fraud remains a top priority for the
IRS," the agency said in a statement on Friday. It added that taxpayers
should continue to file their tax returns as they normally would.
"This is potentially the most serious breach of
personally identifiable information in the history of our country."
The vulnerability of online tax preparation services
became apparent last week when the Utah Tax Commission and the Minnesota
Department of Revenue found thousands of potentially fraudulent returns. Those
returns were filed using TurboTax, the popular program made by Intuit.
Intuit temporarily stopped the transmission of e-filed
state income tax returns on Friday while it investigated. It resumed processing
state returns after announcing that it implemented additional verification
measures, such as multi-factor authentication, a technology that has proven
effective at preventing identity theft.
In a blog post on Friday, the company wrote that filing
of federal returns was not affected. But on its Answer Exchange page (how did
my TurboTax account get hacked into), a half-dozen customers reported fraud
problems with their federal return. The company agrees that is the case.
"We're absolutely aware that tax fraud is happening
at the federal level as well, using compromised credentials," Julie
Miller, Intuit's vice president of communications told NBC News. "This is
a multi-front battle and we are going to fight it at both the state and federal
level."
Intuit insists its systems were not breached. The company
suggests that victims had their TurboTax login information stolen from
"other sources outside the tax preparation process," possibly through
a phishing scam or some other online attack.
Lisa Letchworth, who lives in Washington State, doesn't
know how it happened, but crooks got into her TurboTax account. Last Tuesday,
when she logged on to start her federal return, she got a nasty surprise. A
message on the screen said her return had already been filed and the IRS was
issuing a refund of $5,013 to someone else on a prepaid card.
"It freaked me out," she said.
Letchworth was able to see the bogus return the criminals
had filed. They had all the information from last year's return -- including
the names and Social Security numbers of everyone in her family, employer
names, even a special education credit she claimed.
"It's really frightening," she said. "It's
painfully clear they got into my account."
Because the crooks filed first, Letchworth and her
husband will have to prove to the IRS that they were the victims of identity
theft. Letchworth said the IRS told them it could take six months to straighten
out all the paperwork and get them their refund.
What's going on here?
Tax return fraud isn't new. It's been a massive problem
for both the IRS and states with an income tax. The IRS reports that it has
blocked more than $63 billion in fraudulent returns since 2011.
Online tax preparation software makes it easy for crooks
to create a fake return. Having the refund deposited to a prepaid card provides
a low-risk way to access the stolen money.
And the crooks are getting better at beating the system.
Instead of using stolen Social Security numbers to create
their fraudulent returns, they buy compromised credentials to gain access to
past returns stored on tax preparation software. Using information from a real
return to create a false one improves the odds that it will evade detection.
Security expert Brian Krebs told NBC News that he's found
login credentials for TurboTax, H&R Block and similar services being sold
on the dark web for just pennies each.
"Typically, the usernames and passwords for consumer
accounts at these services are obtained via password-stealing malware that
infects end-user PCs," Krebs writes on his blog.
What can you do to protect yourself?
If you use online tax preparation software, especially
the kind that stores your completed tax returns, change your login information
right away. That's really the only thing you can do.
Security experts believe this crime wave will get worse
unless the states and the IRS deploy better procedures and more sophisticated
software that can detect and stop possible return fraud.
First published February 9th 2015, 9:40 am
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