TurboTax e-filing woes draw customer ire

But the 48-hour reprieve granted by the IRS on Wednesday has not quelled customer ire over how the nation's leading tax-preparation software company could have erred so badly in designing its computer systems.

"Every year, we take the busiest minute of the busiest hour of the busiest day and build capacity on that," said Scott Gulbransen, a spokesman for Intuit. "We built our systems to (handle that load) and we went above and beyond that."

Yet something went terribly wrong. As procrastinating taxpayers came home from work on the East Coast on Tuesday and began to file their returns, the company's servers began to overload.

By around 7 p.m. EDT, they were rejecting customers' attempts to electronically file tax returns. Also affected were TurboTax users' attempts to verify whether a previously filed return had been accepted by the IRS and state tax collectors. At times, Intuit was reportedly processing 50 to 60 returns per second.

"We just got overwhelmed by it," Gulbransen said. "It was not a good customer experience. We're going to continue to work on ways to avoid it in the future."

This isn't the first time that Intuit has experienced a serious customer-vexing snafu. In 2003, it embedded flawed antipiracy technology in TurboTax, but was forced to abandon the idea and apologize to customers.

Two years later, the version of TurboTax designed to handle the 2004 tax year was plagued by glitches and installation problems. It also accidentally directed customers to a phone number used by a sex chat operation called Intimate Encounters. And last week, a Nebraska woman reportedly found a way to access other people's tax returns through Intuit's Web site.

Still, those problems don't seem to have had a substantial negative effect on TurboTax sales. Total sales of the desktop software through early 2004 were 5.7 million units. Sales increased to 6.1 million in 2005 and 6.2 million last year, but were down slightly to 6 million through a comparable period this year. (That seems to be because more people were turning to the Web-based version, which reported a 4 percent increase in sales.)

Intuit's share price was flat on Wednesday, down just 1 cent by noon PDT. It closed at $29.45, up 5 cents.

What the outage does highlight is the risk of relying on a system that has a single point of failure: With paper-based filing, if one post office is closed or is jammed with a long line, another one likely will do the trick.

Another side effect is that if glitches like this prove commonplace, it could give the U.S. Treasury Department ammunition for developing a system that would eliminate simpler tax returns by authorizing the IRS to calculate the amount of tax due instead. The IRS would prepare draft returns and send them to eligible taxpayers for review.

Groups like the Computer and Communications Industry Association, whose members include Intuit and eSmartTax, have opposed any such proposal by saying it would be wildly unpopular and would raise no additional revenue. Their allies in Congress even introduced a bill last year to block such any "return-free tax system."

Irate users vent
TurboTax users vented their frustration on Intuit's community forums, raising complaints and threatening class-action lawsuits. (Intuit was sued as a result of its antipiracy experiment.)

"A successful and intelligent business would prepare for a deadline; sudden rush. Extended customer service hours, additional employees, whatever the demands to ensure...many paying customers...smooth transactions. Especially in a manner dealing with government issues; TAXES. Serious business!" wrote a user who goes by "tmeme" on the Intuit message board.

The snafu was a "disservice" to Intuit customers, tmeme said: "An apology is not going to get it this time. Time is of the essence. I recommend that we begin gathering documentation as evidence of the wrongful business transactions and the inability to benefit from TurboTax and immediately campaign a boycott, class action lawsuit and other remedies to avoid companies from this ordeal and how it has affected US!"

Some customers said the outage provided another reason for the U.S. Congress to adopt a flat tax, which has spurred economic growth in the former Soviet republics that have adopted it. (See News.com's podcast with tax-foe Rep. Ron Paul.) Others pledged to switch to TaxCut, rival software sold by H&R Block.

A widely circulated comment that Intuit Vice President Harry Pforzheimer made to the Associated Press didn't help. Pforzheimer was quoted as saying: "Don't wait until the last minute is the moral of the story."

But Intuit has never warned customers they needed to file long before the IRS' deadline. In fact, a TurboTax press release touts its benefits for "tax procrastinators" who "wait until the last minute."

Pforzheimer's blame-shifting drew a heated response on News.com's own discussion forums. One user posted in response to our earlier story: "If their service was unable to give customers what they wanted, which was, to file at a legal time, then they need to blame themselves, not look to their own customers to place the blame."

Gulbransen, Intuit spokesman, tried to distance the company from those remarks on Wednesday. "A customer should be able to go up to the last minute of the last hour of the last day and that should not be a problem," he said. "This is plain and simple."

CNET News.com's Dawn Kawamoto contributed to this report