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Is your personal data safe with the IRS?

In a tax system based on voluntary compliance, it is crucial that taxpayers the IRS offer sufficient security for personal data submitted by taxpayers. If the agency does not keep such data safe from snooping or hacking, it would fairly quickly threaten the integrity of the entire tax system.

To be sure, paying taxes is not entirely voluntary. The IRS can use the stick of audits or even the threat of criminal charges to enforce compliance. But the agency only has so many agents, and it depends on the carrot of voluntary compliance to go along with the stick of enforcement.

It is therefore of great concern that the Treasury Inspector General for Tax Administration (TIGTA) has identified numerous weaknesses in the ability of the IRS to protect taxpayers' personal information from snooping by its own employees.

The TIGTA report focused on shortcomings in the investigation by the IRS of unauthorized access to taxpayer information. In particular, the report concluded that the agency needs to improve its ability to detect when such breaches have occurred.

A key part of this ability is proper security regarding information technology. For example, an audit trail should be able to show who has accessed a computer and what that user did there.

Such audit trails have other uses as well. They are helpful in safeguarding computer systems and in recovering data for lost transactions. Most systems for managing databases include these audit trails for documenting what operations are being performed on a computer.

At the IRS, this should include the use of audit trails to detect unauthorized access to personal data. In fact, federal law requires this. Indeed, willfully gaining unauthorized access to taxpayer records is a federal crime.

Yet the TIGTA report found that the IRS needs to improve its system for making sure that audit trails function as they are supposed to - so that improper access can be detected.

Source: "Unauthorized IRS Employees Snoop Taxpayer Data," Accounting Today, Michael Cohn, 11-6-12

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our Texas tax litigation page.

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