What to Do After Your Payroll or Tax Professional Data is Compromised (Hacked)

Every tax practitioner in the United States – whether a member of a major accounting firm or an owner of a one-person storefront - is a potential target for highly sophisticated, well-funded and technologically adept cyber-criminals around the world. 

Their objective:

To steal your tax practitioners’ client data so they can file fraudulent tax returns that better impersonate their victims.

Their tactics:

To trick you into giving up computer passwords, e-Services passwords, to steal your EFINs or CAF numbers or even to take remote control of your entire computer system.

The crime fighters:

No one can fight this crime alone. It takes all of us, working together. That is why the Security Summit - the unprecedented partnership between the IRS, state tax agencies, and the private-sector tax industry - came together to form a united and coordinated front against this common enemy. And, that’s why the Summit partners are asking tax professionals nationwide to join this effort.

The Security Summit created the “Protect Your Clients, Protect Yourself” campaign to raise awareness among tax professionals about their legal obligation to protect taxpayer data as well as highlight security threats they face from identity thieves.

These accomplishments had real and substantial impact on curbing stolen identity refund fraud since 2015:

• Confirmed identity theft returns declined. In calendar year 2016, the IRS stopped 883,000 confirmed identity theft returns, a 37 percent drop in confirmed identity theft returns from 2015. During the first eight months of 2017, the IRS has stopped 443,000 confirmed identity theft returns, a 30 percent decline from same time last year.
  
  
• Financial firms stopped suspect refunds. Financial institutions stopped 124,000 suspect refunds in 2016, a 50 percent decline from 2015. Financial institutions have stopped 127,000 suspect refunds so far this year, which in part reflects a handful of cases involving several thousand accounts.
  
  
• Identity theft victim numbers fell substantially. The number of people reporting that they were victims of identity theft fell to 376,000 in 2016, a 46 percent decline from 699,000 in 2015. This year the strong trend line has continued through August: 189,000 taxpayers have reported themselves as victims of identity theft, which is down approximately 40 percent from the same time last year.

 
New Protections for Business Returns:

The Summit partners also are putting an increased emphasis on identity theft protections for business returns in the Form 1120 and 1041 series. The IRS will be asking tax professionals to gather more information on their business clients. The data being collected assists the IRS in authenticating that the tax return being submitted is actually a legitimate return filing and not an identity theft return.

Some of the new questions people may be asked to provide when filing their business, trust or estate client returns include:

• The name and Social Security number of the company individual authorized to sign the business return. Is the person signing the return authorized to do so?
• Payment history – Were estimated tax payments made? If yes, when were they made, how were they made, and how much was paid?
• Parent company information – Is there a parent company? If yes, who?
• Additional information based on deductions claimed.
• Filing history – Has the business filed Form(s) 940, 941 or other business-related tax forms?

Businesses Should Recognize Identity Theft Signs:

As with fraudulent individual returns, there are certain signs that may indicate identity theft. Business, partnerships and estate and trust filers should be alert to potential identity theft and contact the IRS if they experience any of these issues:
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• Extension to file requests are rejected because a return with the Employer Identification Number or Social Security Number already on file;
• An e-filed return is rejected because of a duplicate EIN/SSN is already on file with the IRS;
• An unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything submitted by the filer;
• Failure to receive expected and routine correspondence from the IRS because the thief has changed the address.

It is important to know that tax and payroll professionals and other entities that hold personally identifiable information are being targeted by cyber-criminals who then impersonate clients to steal additional sensitive information from their files. The best tax professionals and payroll companies will continue to increase security with due diligence steps regarding email requests for personal information and watch out for phishing emails.

What to Do After a Tax Professional Data Compromise (video)