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June 14, 2015


IRS, tax prep industry seek to improve security of personal data

We will conclude our two-part post on non-prosecution agreements regarding offshore accounts in next week’s post. This week we will take note of the ongoing story of a serious data breach at the IRS.

In early June, the Senate Finance Committee held a hearing on the breach, after hackers gained unauthorized access to personal information about more than 100,000 taxpayers stored in IRS computers. The thieves used the information to file fraudulent tax refund claims that cost the federal government millions of dollars.

In this post, let’s check in on some of the steps the IRS is taking to respond to the embarrassing breach. In particular, we will look at efforts the agency is making to collaborate with the tax preparation industry and state governments to improve data security for electronic filing of tax returns.

IRS Commissioner John Koskinen announced on June 11 that the tax preparation software industry has agreed to make aggregated data about tax filings available to government authorities. This data is supposed to help in detecting patterns of tax refund fraud based on identity theft.

The details of this big-data initiative are naturally quite technical. The features involved include upgrading the capacity to crosscheck Internet addresses and computers used for electronically filed returns. This makes sense because multiple refund requests from the same Internet address would be a suspicious sign.

Under the new fraud-fighting initiative, aggregate data will also flow from government to the tax prep industry, in the form of monthly reports on criminal tactics and trends.

It may seem a bit counter-intuitive to share more data in order to address the issue of data breaches. But the data to be shared is not personally identifiable. And the effort shows that government and the tax industry are finally beginning to work together more collaboratively to address the ongoing problem of data security and the need to prevent tax fraud based on unauthorized access to taxpayers’ personal information.