Data Thefts and Protecting Client Tax Information

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1 Data Thefts and Protecting Client Tax Information October 20, 2015 The information contained in this presentation is current as of the date it was presented. It should not be considered official guidance.

2 Data Thefts and Protecting Client Tax Information We are committed to working in partnership with you and the tax professional organizations to protect the integrity of the tax system. IRS Commissioner John A. Koskinen 1

3 Data Thefts and Protecting Client Tax Information Webinar Agenda How to protect Taxpayer information Increase awareness about data loss threats Discuss best practices 2

4 Do you have a question? Select the Ask a Question link under the PowerPoint window and click the submit button. 3

5 Data Thefts and Protecting Client Tax Information Ken Corbin Director, Return Integrity and Compliance Services W&I Division Shawn S. Tiller Executive Director, Criminal Investigation Mark Kahler Senior Analyst, Criminal Investigation David P. Lyons President, Lyons & Lyons, PC 4

6 Challenges to the Tax System Scale of Identity Theft/Data Theft Financial burden of identity theft now exceeds all property crimes combined. Identity theft remains #1 complaint filed with Federal Trade Commission Identity theft victim occurs every two seconds. More than 1 billion personal records stolen in 2014 Large-scale data breaches netted more than 100 million SSNs in 2015 to date Not all data theft is identity theft and not all identity theft is taxrelated identity theft the filing of fraudulent returns. 5

7 Challenges to the Tax System IRS Fraud Filters Improve Each Year 19 million suspicious returns reviewed between $63 billion fraudulent refunds stopped between million suspicious returns rejected or stopped from processing in 2015 through September; 1.2 million confirmed IDT $9.5 billion in fraudulent refunds protected in calendar year 2015 through September 6

8 Combating Tax-Related Identity Theft IRS Actions in Recent Years: Increase fraud filters to 200 in 2015 from 11 in 2012 Limit direct deposits to three refunds in single account Locked accounts of nearly 29 million deceased taxpayers Improved cooperation with local law enforcement 7

9 Combating Tax-Related Identity Theft IRS Actions in Recent Years: Reduced internal use of SSNs Reduced prisoner tax fraud Worked with 286 financial institutions to identify fraudulent refunds, recovered $3 billion past three years. Improved EFIN policies to prevent abuse. 8

10 Combating Tax-Related Identity Theft Security Summit Update: Improve verification of taxpayer/return at time of filing More than 20 new data elements New password standards Improve information sharing Certain providers make weekly reviews for schemes Increase security awareness among taxpayers and professionals Create a new tax preparer work group 9

11 David Lyons, CPA Data breach Cyber attack/data theft Occurred October 2012 Became aware of the theft in February 2013 Homeland Security/IRS Criminal Investigation Bulgarian national 10

12 David Lyons, CPA Data breach Dealing with the theft Hiring additional staff Notifying customers Obtaining credit protection services for clients IRS ID Protection Unit /Taxpayer Advocate Actions taken to prevent future breaches/data thefts Passwords minimum 12 characters long Password protected each client s tax file Restricted hours of remote access software 11

13 Criminal Investigation IDT Remains a CI Priority Initiated 1,800 IDT-related investigations in last two years Over 1,500 sentenced to prison Average sentence exceeded three years; longest 27.5 years 1,100 LEAP partners in 48 states IDT Clearinghouse received over 7,600 leads since FY12 CI lead agency in 70 multi-regional task forces/working groups 12

14 Data Theft Tactics Scams Lead to Data Thefts Phishing s, text or calls Pose as trusted organizations Embed links to fake websites Use malware-infected attachments Risks Account take-overs (Banks, IRS e-services, Tax Software) Computer breaches Educate employees on scams/risks 13

15 Safeguarding Client Data Review Your Security and Make a Plan Use top-notch security software Firewall Anti-virus File Encryption Educate employees on data theft dangers Use strong passwords Secure wireless connection if you use wi-fi in your office; make sure it is password protected. 14

16 Safeguarding Client Data Review Your Security and Make a Plan Use encrypted programs to exchange PII information with taxpayers. Back up taxpayer data frequently, perhaps on an external hard drive and endure that hard-drive is kept in a secure location with limited access by others. If you keep paper files, ensure they are stored in a secure location. Check EFIN stats weekly; if the number is excessive, contact e-help Desk immediately. 15

17 Safeguarding Client Data Federal Laws Apply to Preparers Gramm-Leach-Bliley Act, the Safeguards Rule requires you to ensure the security and confidentiality of customer records and information. Gramm-Leach-Bliley Act, the Financial Privacy Rule deals with privacy notices and information collection and sharing. Internal Revenue Code (IRC) imposes criminal and monetary penalties for knowingly or recklessly making unauthorized disclosures 16

18 New Guidance for Preparer Breaches If you suffer a theft or loss of taxpayer data: Call your local stakeholder liaison to report the loss to the IRS Local listing for your liaison can be found at IRS.gov, keyword Stakeholder Liaison Stakeholder Liaison will notify CI and RICS CI will determine whether to launch an investigation RICS will determine if there is a tax administration impact and will mark taxpayer accounts 17

19 Make a Data Theft Plan Recommendations: Review FTC Suggestions for Data Theft Response Notify Law Enforcement (and IRS Stakeholder Liaison) Notify Major Credit Bureaus Notify Individuals Describe in your notice to clients what you know about the compromise, including how it happened, what information was taken and what actions you have taken to remedy the situation. 18

20 Summary Review Publication 4557 Review your security policy Create a security plan Beware phishing s; educate employees about the phishing/malware dangers Review FTC suggestions for data theft response Create a data theft plan notify IRS of loss Help educate your clients about phishing/malware dangers by sharing Publication 4524 Check EFIN stats weekly during filing season 19

21 Data Thefts and Protecting Client Tax Information Q&A Session Ken Corbin Director, Return Integrity and Compliance Services W&I Division Shawn S. Tiller Executive Director, Criminal Investigation Mark Kahler Senior Analyst, Criminal Investigation David P. Lyons President, Lyons & Lyons, PC 20

22 IRS Video Portal Go to: and click the "All Webinars" tab to view IRS Webinar Archives. 21

IRS UPDATES & Taxes. Security. Together.

IRS UPDATES & Taxes. Security. Together. Dennis Bell Senior Stakeholder Liaison CATA February 3, 2016 Issue 5: Online Tools for Tax Professionals 1 Keeping Current Preparer Guidelines 2 Other Tax Pro Links