IRS Press Release
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IR-2018-175, Aug. 28,
2018
WASHINGTON — The
Internal Revenue Service and Security Summit partners reminded tax
professionals that protecting taxpayer information isn’t just good for the
clients and good for business – it’s also the law.
The Summit partners
urged tax professionals to be aware of their obligations to protect client data
and to cooperate with any IRS investigation related to data theft.
The IRS has a number
of publications to help tax professionals navigate tax-related rules and
regulations related to protecting data. In addition, the IRS, state tax
agencies and the tax industry today reminded tax return preparers that a 1999
law requires that they create and implement a data security plan.
This is the eighth in
a series called “Protect Your Clients; Protect Yourself: Tax Security 101.”
The Security Summit awareness campaign is intended to provide tax professionals
with the basic information they need to better protect taxpayer data and to
help prevent the filing of fraudulent tax returns.
Although the Security
Summit is making progress against tax-related identity theft, cybercriminals
continue to evolve, and data thefts at tax professionals’ offices are on the
rise. Thieves use stolen data from tax practitioners to create fraudulent
returns that are harder to detect.
The Financial Services
Modernization Act of 1999, also known as the Gramm-Leach-Bliley (GLB) Act,
gives the Federal Trade Commission authority to set information safeguard
regulations for various entities, including professional tax return preparers.
According to the
FTC Safeguards
Rule, tax return preparers must create and enact security plans to
protect client data. Failure to do so may result in an FTC investigation. The
IRS also may treat a violation of the FTC Safeguards Rule as a violation of
IRS Revenue
Procedure 2007-40, which sets the rules for tax professionals
participating as an Authorized IRS e-file Provider.
In addition, members
of the IRS Electronic Tax Administration Advisory Committee (ETAAC) in June
noted that they believe “far fewer than half of tax professionals are aware of
their responsibilities under the FTC Safeguards rule and that even fewer
professionals …have implemented required security practices.”
The FTC-required
information security plan must be appropriate to the company’s size and
complexity, the nature and scope of its activities and the sensitivity of the
customer information it handles. According to the FTC, each company, as part of
its plan, must:
- designate one or more employees
to coordinate its information security program;
- identify and assess the risks
to customer information in each relevant area of the company’s operation
and evaluate the effectiveness of the current safeguards for controlling
these risks;
- design and implement a
safeguards program and regularly monitor and test it;
- select service providers that
can maintain appropriate safeguards, make sure the contract requires them
to maintain safeguards and oversee their handling of customer information;
and
- evaluate and adjust the program
in light of relevant circumstances, including changes in the firm’s
business or operations, or the results of security testing and monitoring.
The FTC says the
requirements are designed to be flexible so that companies can implement
safeguards appropriate to their own circumstances. The Safeguards Rule requires
companies to assess and address the risks to customer information in all areas
of their operations.
The IRS has
revised Publication
4557, Safeguarding Taxpayer Data, to detail critical security
measures that all tax professionals should enact. The publication also includes
information on how to comply with the FTC Safeguards Rule, including a
checklist of items for a prospective data security plan.
The IRS and certain
Internal Revenue Code (IRC) sections also focus on protection of taxpayer
information and requirements of tax professionals. Here are a few examples:
IRS Publication
3112 - IRS e-File
Application and Participation, states: Safeguarding of IRS e-file from fraud
and abuse is the shared responsibility of the IRS and Authorized IRS e-file
Providers. Providers must be diligent in recognizing fraud and abuse, reporting
it to the IRS, and preventing it when possible. Providers must also cooperate
with the IRS’ investigations by making available to the IRS upon request
information and documents related to returns with potential fraud or abuse.
IRC, Section
7216 - This provision
imposes criminal penalties on any person engaged in the business of preparing
or providing services in connection with the preparation of tax returns who
knowingly or recklessly makes unauthorized disclosures or uses information
furnished to them in connection with the preparation of an income tax return.
IRC, Section
6713 - This provision
imposes monetary penalties on the unauthorized disclosures or uses of taxpayer
information by any person engaged in the business of preparing or providing
services in connection with the preparation of tax returns.
Rev. Proc.
2007-40 - This procedure
requires authorized IRS e-file providers to have security systems in place to
prevent unauthorized access to taxpayer accounts and personal information by
third parties. It also specifies that violations of the GLB Act and the
implementing rules and regulations put into effect by the FTC, as well as
violations of non-disclosure rules addressed in IRC sections 6713 and 7216, are
considered violations of Revenue Procedure 2007-40. These violations are
subject to penalties or sanctions specified in the Revenue Procedure.
Many state laws govern
or relate to the privacy and security of financial data, which includes
taxpayer data. They extend rights and remedies to consumers by requiring
individuals and businesses that offer financial services to safeguard nonpublic
personal information. For more information on state laws that businesses must
follow, consult state laws and regulations.
In some states, data
thefts must be reported to various authorities. To help tax professionals find
where to report data security incidents at the state level, the Federation of
Tax Administrators has created a special page with
state-by-state listings. To notify the IRS in case of data theft, contact local
IRS Stakeholder
Liaisons.
To improve data
security awareness by all tax professionals, the IRS will host a webinar on
Sept. 26, 2018. The focus will be on the same topics as this series: “Protect
Your Clients; Protect Yourself: Tax Security 101.” Although tax preparers will
be eligible for one CPE credit, the IRS invites others working on tax issues to
attend. Protecting taxpayer information takes everyone working together.
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