With only a few weeks left in this year’s tax season, the IRS, state tax agencies and the tax industry warned tax professionals to be alert to taxpayer data theft in the final weeks of the tax filing season. The Security Summit partners urged all tax professionals to enhance their data safeguards immediately.
In recent days, the new client scam has reemerged, signaling ongoing attempts by cybercriminals to target tax professionals with spear phishing schemes. In this scam, a “new client” emails the tax pro about a tax issue, attaching documents to their email that claim to be an IRS notice or prior-year tax information. The documents actually contain malware that, if opened, enable the criminals to steal taxpayer information.
This filing season, the IRS has seen a steep upswing in the number of reported thefts of taxpayer data from tax practitioner offices. Seventy-five firms reported taxpayer data thefts in January and February, nearly a 60 percent increase from same time last year. Much of this increase follows one scam – the erroneous-refund scheme – that affected thousands of taxpayers and numerous practitioners earlier this filing season.
January through April represents prime season for cybercriminals to attack tax practitioners, but data thefts can occur at any time. All tax professionals should be on high alert and deploy strong security measures as the filing season reaches a peak with the April 17 deadline. Criminals try to take advantage of this extremely busy time of year when tax professionals are in greater contact with the taxpayers and are in possession of more data.
Some tax professionals may be unaware they are even victims of data theft. Here are some signs:
- Client e-file returns begin to reject because returns with their Social Security numbers already filed.
- The number of returns filed with a tax practitioner’s electronic filing identification number (EFIN) exceed the number of clients.
- Clients who haven’t filed tax returns begin to receive authentication letters (5071C, 4883C and 5747C) from the IRS.
- Network computers are running slower than normal.
- Computer cursors move or change numbers without touching the keyboard.
- Network computers lock out tax practitioners.
Identity thieves often are part of sophisticated criminal syndicates based here and abroad who have the resources, tax savvy and digital expertise to pull off these crimes. They use a variety of tactics to break into tax professionals’ computer systems and steal client information if appropriate security measures have not been taken.
A common tactic is called spear phishing in which the criminal singles out one or more tax preparers in a firm and sends an email posing as a trusted source such as the IRS, e-Services, a tax software provider or a cloud storage provider. Thieves also may pose as clients or new prospects. The objective is to trick the tax professional into disclosing sensitive usernames and passwords, or to open a link or attachment that secretly downloads malware enabling the thieves to track every keystroke.
The new client scam is one form of spear phishing. Here’s an example: “I just moved here from Michigan. I have an urgent tax issue and I was hoping you could help,” the email begins. “I hope you are taking on new clients.” The email says one attachment is the IRS notice and the other attachment is the prospective client’s prior-year tax return. This scam has many variations. (See IR-2018-2, Security Summit Partners Warn Tax Pros of Heightened Fraud Activity as Filing Season Approaches.)
The IRS Criminal Investigation division continues to investigate a series of data thefts at tax preparers’ offices earlier this year in which the criminals added a new twist to their scheme to file fraudulent tax returns. The thieves directed the fraudulent refunds into the taxpayers’ actual bank accounts. This scam has claimed thousands of taxpayer victims.
Although reports of this data theft have lessened recently, taxpayers and tax professionals should remain on alert for this scam. In addition, taxpayers should return any fraudulent refunds to the IRS the proper way, as well as discuss security options for their checking or savings accounts with their financial institutions. Here are the recommended security steps by the Security Summit:
- Learn to recognize phishing emails, especially those pretending to be from the IRS, e-Services, your tax software provider or your cloud storage provider. Never open a link or any attachment from a suspicious email. Remember: The IRS never initiates an email.
- Create a data security plan using IRS Publication 4557, Safeguarding Taxpayer Data, and Small Business Information Security – The Fundamentals by the National Institute of Standards and Technology.
- Review internal controls:
- Install anti-malware/anti-virus security software on all devices (laptops, desktops, routers, tablets and phones), and keep software automatically updated.
- Use strong and unique passwords of 10 or more mixed characters, password protect all wireless devices, use a phrase or words that you can remember, and change your password periodically.
- Encrypt all sensitive files/emails and use strong password protections.
- Back up sensitive data to a safe and secure external source not connected fulltime to your network.
- Wipe clean or destroy old computer hard drives that contain sensitive data.
- Limit access to taxpayer data to individuals who need to know.
- Check IRS e-Services account weekly for number of returns filed with an EFIN.
- If you have a security incident or a breach resulting in data disclosure, report the incident to the IRS Stakeholder Liaison for your state.
- Stay connected to the IRS through subscriptions to e-News for Tax Professionals, Quick Alerts and Social Media.
In addition, the Intuit® ProConnect™ Tax Pro Center will continue publishing articles about fraud and security, so check back for updates on a regular basis.