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Smooth tax season start? Not for some TaxAct users

The Internal Revenue Service apparently is having a welcome and calm start to the 2016 tax filing season.

A few hours after Uncle Sam's tax collectors began accepting and processing returns on Jan. 19, the IRS issued a statement noting that it had "successfully opened its systems today in a smooth opening of the 2016 tax filing season. Through mid-day, the IRS had received several hundred thousand tax returns."

But some TaxAct customers weren't among those whose returns were starting through the federal tax system.


ID theft attempt to get tax info: Just a few days before the filing season and Free File opened for business, the tax software manufacturer sent a letter to about 450 customers, notifying them of a data breach. The unfortunate correspondence recipients were told that tax identity thieves may have their names and Social Security numbers.

TaxAct also informed affected users that prior-year tax returns stored in their accounts -- which could contain the taxpayers' addresses, bank account information and other personal data -- may have been opened or printed sometime between Nov. 10 and Dec. 4, 2015.

An additional 9,000 TaxAct accounts also were frozen because of suspicious activity. These filers will be subject to additional verification when they use their TaxAct account this year.

Outside data used to break in: TaxAct's security breach is similar to the compromised IRS' Get Transcript tool. In both cases, it appears that the personal data used to get into customer accounts at the IRS and TaxAct came from outside the company.

"We have no evidence that any TaxAct system has been compromised and believe the third party used username and password combinations obtained from sources outside of our system," the company said in the letter.

TaxAct suggests that letter recipients check their credit reports for any suspicious activity. They also might want to put a fraud alert or security freeze in place.

The tax preparation company also recommends that the customers get an Identity Protection Pin (IP PIN) from the IRS. This unique identification number is used by legitimate taxpayers to file their returns.

And the Cedar Rapids, Iowa-based company is offering affected customers a year's subscription to an identity monitoring service

So far, TaxAct is the only tax software company reporting any security issues. But the filing season is young.

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I use a desktop version of tax software because I do not want to trust another company to keep my data safe when I have an alternative. I also have chosen to file a paper return rather than file electronically. I make electronic payments using EFTPS.

With my 2013 return, I found an error in the TaxAct software. I was very pleased that they corrected the software before I had to file, even though it took more than 30 days. When I first contacted them, they asked me to send them my data by email. I had to explain to them that I would not do so for security reasons. They had no secure way for me to send them the return. I also had to explain it would only take them a few minutes to simulate the error if they carefully read the information I had already supplied. So, I felt I had at least one data point with TaxAct that says I need to do what is necessary to protect the data.

Because of price, I switched from TaxAct to HR Block this year. I will see how it goes. Unfortunately, I found what looks like an error in the HR Block software and in over a week have not yet got to the right person to resolve. TaxAct did much better in 2013 to identify and agree that the software would be fixed.

I would be interest in hearing other people's experience with errors in the software and their customer service experience.

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