Are fraudulent tax returns the fault of the IRS, or caused by a weakness in the most popular software programs that consumers use to file their taxes? Former employees of Intuit, maker of TurboTax, allege that the company prevented security staff from flagging and shutting down obviously fraudulent accounts. Why? Market share. Fraudsters were ditching TurboTax and using other tax software when the company flagged their returns.

Depending on what state the person lives in, a fraudster must pay TurboTax $25-50 to file a state income tax return. They often use a service that deducts the filing fee from the victim’s refund, so Intuit doesn’t have to deal with the hassles of scammers using stolen credit card numbers to pay, which is often the problem.

It wasn’t difficult for Intuit employees to flag who the fraudsters are. “If I sign up for an account and file tax refund requests on 100 people who are not me, it’s obviously fraud,” former XX Robert Lee explained to Krebs on Security.

This wasn’t a case of Intuit being evil for evil’s sake. (Some customers would argue that their reshuffling of desktop software features was.) Lee explained that while Intuit’s security team noticed and reported fraudulent returns, the identity thieves simply turned to one of their competitors. Another former employee has filed a whistleblower complaint with the Securities and Exchange Commission alleging that the company delayed or didn’t send fraud reports over to the IRS so the fraudulent returns would go through.

Tax software publishers are not required to screen for fraud and report it to the Internal Revenue Service. That means there was money out there to be made from fraudulent returns, and someone was going to make it.

An Intuit spokesman countered the whistleblowers’ arguments, pointing out that it’s the IRS that ultimately decides which tax returns are fraudulent, and if a return is officially flagged and not processed, there’s no refund from which Intuit could collect its fee. “When it comes to market share, it doesn’t count toward our market share unless it’s a successful return,” the chief communications officer explained to Krebs. Neither the IRS nor Intuit wants to hold up legitimate tax returns and refund checks in bureaucratic hell when that return is flagged for possible fraud.

TurboTax’s Anti-Fraud Efforts Under Scrutiny [Krebs on Security]

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