MONTPELIER, Vt. — The state tax department said Friday it had temporarily stopped issuing personal income tax refunds while it investigates recent cases of refund fraud.

The move came as TurboTax, the country’s most popular do-it-yourself tax preparation software, said it had temporarily stopped processing state tax returns because of an increase in fraudulent filings.

TurboTax’s parent company, Intuit Inc., based in Mountain View, California, said state agencies had reported a rise in filings with stolen personal information. It later said it resumed the filing of state returns with increased anti-fraud measures on Friday evening, a day after it had halted the process.

Vermont Tax Commissioner Mary Peterson said the tax department stopped 822 fraudulent refunds last year and already has stopped 121 in the first few weeks of this year.

“The volume we’re seeing is definitely high. It’s been going up every year,” Peterson said.

She said the department has heard from other states that criminals may have had access to people’s tax returns from prior years.


“So it was not only the volume but it was sort of the nature of fraud that was being reported that caused us to take this really unusual step,” she said.

The department said that the potential identity theft and refund fraud is not related to any breach of Vermont government systems but rather the use of identities stolen elsewhere.

Minnesota has temporarily stopped accepting TurboTax filings by individual taxpayers because of security concerns.

To combat the problem, the Vermont Department of Taxes says this year it’s issuing only paper checks to first-time filers, since fraudulent refunds are often associated with first-time returns.

The department also installed state-of-the-art software in 2011 and is making tweaks to it in response to the fraud, Peterson said.

Refunds could take longer to receive, but Peterson is encouraging people to continue to file their tax returns.

“We’re always trying to balance getting people’s refunds back, it is people’s money, with stopping fraud,” she said.

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