How Entrepreneurs Can Protect Against Theft of Their Tax Information

The theft and unauthorized release of tax data is an ongoing issue that affects businesses and individuals alike. With high-profile cases like that of Charles Littlejohn—an IRS contractor who leaked the tax returns of notable figures including Donald Trump, Jeff Bezos, and Peter Thiel—it’s clear that tax data security is a significant concern. In response, the House recently passed the Taxpayer Data Protection Act, which aims to toughen penalties for such crimes.

What is the Taxpayer Data Protection Act?

The Taxpayer Data Protection Act strengthens the legal repercussions for leaking tax information. Key provisions of the Act include:

• Increased Sentencing: Maximum prison terms have doubled from five to ten years per count.
• Higher Fines: The maximum fine per offense has been raised from $5,000 to $250,000.
• Individual Counts for Each Victim: Rather than treating a multi-victim leak as a single offense, each individual impacted is considered a separate count.

The legislation is a reaction to gaps in the current legal framework, which was established before the advent of the internet age and its associated risks. Tax data leaks now pose a larger threat due to the ease with which data can be accessed, copied, and distributed.

Implications for Business Owners

Businesses are especially vulnerable due to the sensitive financial information they must submit to the IRS. Here are some proactive steps to protect tax data and avoid potential risks:

1. Invest in Secure Systems: Use encryption and multi-factor authentication to safeguard financial information. These steps help prevent unauthorized access and protect your data in case of a breach.
2. Conduct Regular Security Audits: Businesses should routinely check for vulnerabilities in their data storage and transmission processes. Regular audits ensure that outdated or ineffective security measures are identified and replaced.
3. Employee Training and Awareness: Most data leaks result from human error or insider threats. Implementing regular training sessions on data security protocols can minimize the risk of accidental or intentional breaches by employees.
4. Stay Updated on Legislation: Understanding changes in tax laws, like the Taxpayer Data Protection Act, can help business owners stay ahead of compliance requirements and implement best practices.
5. Consider Cyber Liability Insurance: This insurance can protect your business from financial losses associated with data breaches, covering costs such as legal fees, data restoration, and customer notification.

A Broader Push for Security Improvements

As more companies handle tax data digitally, the need for robust security measures grows. The IRS has been allocated billions to upgrade its security systems, but recent events show that internal safeguards alone aren’t enough. Business owners must also take responsibility for their data, implementing the most up-to-date security practices and staying informed about new threats.

Final Thoughts

With the passing of the Taxpayer Data Protection Act, the government is sending a clear message about the seriousness of tax data theft. However, business owners must also be vigilant, taking steps to ensure that their sensitive financial information remains protected. By investing in security systems, conducting audits, and keeping up with legislative changes, businesses can help shield themselves from the risks associated with tax data leaks.

By prioritizing data security, you not only protect your business but also contribute to a safer, more trustworthy financial ecosystem.