Is the IRS Doing Enough to Protect Taxpayers’ Information?

July 29, 2011 by  Filed under: Taxes 

One of the issues that have remained at the forefront of the IRS agenda for 2011 is identity theft. Identity theft has been a growing issue for the IRS over the years and especially so, as more people are making the transition from paper filing to e-filing. However, the identity theft crisis with the IRS was highlighted by a several reports in 2011 that drew significant attention towards the way the IRS was handling taxpayers’ information.

Government Accountability Office Report on Identity Theft

A Government Accountability Office report on tax-related identity theft that was released early 2011 revealed that there were over 245,000 cases of identity theft in the 2010 tax returns. This may seem like a small number, especially when you consider that about 100 million taxpayers filed electronically in the same year. However, what was alarming about this GAO report was that the cases of identity theft had grown 5-fold only between 2008 and 2010. What was even more disturbing about this report was that the IRS had not prosecuted the tax thieves on a majority of these cases of identity fraud.

House Report Hearing on Identity Theft Victims

Following the GAO report, the House Committee on Oversight and Government Reform arranged a meeting with victims of the identity theft to hear their grievances. Many of the victims of the identity theft complained of ill treatment by staff members of the IRS. Following this committee hearing, the IRS came under immense attack on the way it handled issues of identity theft. Some of the victims complained that they had to repeat the same thing over and over again to different IRS staff. Some claimed that they had to constantly follow up with the IRS for many months before they saw their tax refunds.

TIGTA Report on Information Security in the IRS

To add the proverbial insults to injury, a report released in July 2011 by the Treasury Inspector General for Tax Administration (TIGTA), an IRS watchdog, revealed that taxpayers’ information sent to the IRS was vulnerable to hackers due to some security lapses. According to this report, 2,200 databases used in 13 of the primary IRS software used to process taxes had security lapses that may create loopholes for both internal and external information hackers. These databases operate on some outdated software programs that are not updated in their security features. The report also revealed the IRS did not fully install a security surveillance and compliance testing software that cost $1.1 million. The failure to fully implement this software means that the IRS is not fully aware of the risks that it is exposed to in its information databases. According to the IRS, the incomplete installation of this security software was brought about by complications that arose from multiple implementation of the same software. The report also noted that the database’s management was loosely handled by different offices and that there was no single IRS office that was charged with the duty of configuring and securing these databases.

IRS Response to the TIGTA Report

In response to this TIGTA report, the IRS admitted that indeed, there were security lapses in their information databases. However, it insisted that none of these 2,200 databases contained taxpayers’ information and that the information was safe. The IRS said that these databases were for internal use only and were not accessible from outside the IRS. They also said that in spite of the risks associated with these databases, there had been no information breach. They noted that information security was an ongoing process and that continuous procedures were underway to constantly ensure that taxpayers’ information remains safe. The IRS also agreed to implement the seven recommendations that were included in the TIGTA report towards ensuring better information safeguarding.

Going Forward

As the IRS continues to receive increasing pressure on its management of identity fraud and the handling of electronic taxpayers’ information, the public awaits to see whether this will impact the alarmingly growing trend of identity theft.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA.

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