Create a data theft recovery plan
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Rather than wait for an emergency, tax professionals should consider creating a data theft recovery plan in advance and make calling the IRS an immediate action item. Having an action plan can save valuable time and protect your clients and yourself. Should a tax professional experience a data compromise – whether by cybercriminals, theft or just an accident – there are certain basic steps to take. These include:
Contacting the IRS and law enforcement:
- Internal Revenue Service. Report client data theft to local IRS Stakeholder Liaisons, who will notify IRS Criminal Investigation and others within the agency on the tax professional’s behalf. Speed is critical. If reported quickly, the IRS can take steps to block fraudulent returns in clients’ names, helping your firm and your clients.
- Federal Bureau of Investigation, local office (if directed).
- Secret Service, local office (if directed).
Contacting states in which the tax professional prepares state returns:
- State Attorneys General for each state in which the tax professional prepares returns. Most states require that the attorney general be notified of data breaches, so this notification process may involve multiple offices in some locations.
- Security expert. They can help determine the cause and scope of the breach as well as stop the breach and prevent further breaches from occurring.
- Insurance company. Not only to report the breach, but to check if the insurance policy covers data breach mitigation expenses.
Contacting clients and other services:
- Credit / identity theft protection agency. Certain states require offering credit monitoring and identity theft protection to victims of identity theft.
- Credit bureaus. Notifying them if there is a compromise and your clients may seek their services.
- Clients. At a minimum, send an individual letter to all victims to inform them of the breach but work with law enforcement on timing. Clients should complete IRS Form 14039, Identity Theft Affidavit, but only if their e-filed return is rejected because of a duplicate Social Security number or they are instructed to do so.
- Remember: IRS toll-free assisters cannot accept third-party notification of tax-related identity theft. Again, preparers should use their local IRS Stakeholder Liaison to report data loss.
The objective of the “Taxes-Security-Together” Checklist is to ensure all tax professionals, whether a one-person shop or a major firm, understand the risk posed by national and international criminal syndicates, take the appropriate steps to protect their clients and business and understand the laws around their obligation to secure that data.
“The number of tax professionals reporting data thefts to the IRS remains too high, and it puts tens of thousands of taxpayers at risk for identity theft,” Rettig said. “We hope tax professionals will use the Summit checklist as a starting point, not an end point, to protect their client’s data — and themselves. It’s not only a good business practice, it’s the law.”
Alfredo Gaxiola has worked on numerous IRS problem cases and has successfully settled with the IRS to release liens on houses, bank accounts and wages and, if needed, setting a payment installment plan that is not burdensome for the client. He has conducted appeals before the U.S. Tax Court and obtained favorable resolutions in reducing the tax debt of his clients. Mr. Gaxiola served as Treasurer of Camara de Empresarios Latinos, one of the largest and strongest Hispanic organizations in the city of Houston. He has conducted financial and accounting seminars for the Houston Small Business Development Corporation, as well.
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