By Marisa Kendall, From The Recorder

SAN FRANCISCO — In a suit filed Monday against Intuit Inc., plaintiffs lawyers claim lax security protections in the company’s TurboTax software are to blame for a recent spike in fraudulent tax returns.

Intuit didn’t take adequate steps to stop criminals from using TurboTax to steal customers’ personal information, file false returns on their behalf and cash in their refunds, according to the complaint. The suit, filed less than a week after this year’s tax filing deadline, comes after an uptick in fraudulent state returns briefly shut down TurboTax’s service and reportedly prompted an FBI investigation.

“Rather than protecting customers’ personal and financial information by implementing stricter security measures, TurboTax has instead knowingly facilitated identity theft tax refund fraud by allowing cybercriminals easy access to its customers’ most private information,” the lawyers wrote in the complaint filed in the Northern District of California.Intuit has a duty to protect sensitive customer data, according to the complaint, and the company’s website promises that “all TurboTax platforms offer a secure, easy-to-use experience.” Instead, the lawyers claim Intuit waited years to implement a “very basic” two-step authentication system already used by email and social media companies. The company didn’t make the change until February, after widespread reports of fraud.

Plaintiffs lawyers also accuse Intuit of failing to notify victims after their personal information was used to file fraudulent tax returns.

An Intuit spokeswoman said the Mountain View-based company doesn’t comment on pending litigation.

The plaintiffs’ legal team includes Richard McCune of McCuneWright in Redlands; Michael Sobol of Lieff, Cabraser, Heimann & Bernstein in San Francisco; and John Yanchunis of Morgan & Morgan in Florida.

The lawyers seek to represent a nationwide class of TurboTax customers who had personal data stolen, and a second nationwide class of non-customers who were victims of fraudulent returns filed in their name through TurboTax. They accuse the company of aiding and abetting fraud, breach of contract and violating California’s Unfair Competition Law and Consumer Records Act.

Tax fraud has ballooned as more people file their taxes electronically with the help of tools such as TurboTax’s software or online platform. Instances of suspected electronic tax fraud jumped from 500,000 in 2010 to almost two million in 2013, the plaintiffs lawyers wrote, citing data from the Internal Revenue Service. The IRS prevented an estimated $24.2 billion in fraudulent refunds in 2013, and paid another $5.8 billion in refunds that were later deemed fraudulent.

According to the suit,

Intuit insiders have accused the company of turning a blind eye to tax fraud. Shane MacDougall, a former Intuit security engineer, filed a whistleblower complaint with the Securities and Exchange Commission claiming he frequently tried to correct ongoing tax fraud and was rebuffed, the suit states. Robert Lee, a former security business partner at Intuit’s consumer tax group, told media outlets that Intuit scaled back its protections when executives realized the criminals were taking their business to TurboTax’s competitors.

A February post on the TurboTax blog called the accusations by former employees “unfounded” and “without merit.”

“We recognize that some employees who work in information security would like us to do more to prevent fraud,” the post says, “and we are committed to doing so as fast as we can to combat the constantly evolving and increasingly sophisticated methods of cybercriminals.”

IMAGE: Michael Sobol, Lieff Cabraser Heimann & Bernstein

For more on this story go to: http://www.therecorder.com/id=1202724182871/Intuit-Accused-of-Facilitating-Tax-Fraud#ixzz3Y3JTaeNx