Ask The EDD Lawyer – How Did Organized Crime Steal More Than 100,000 Tax Transcripts From The IRS?! What Is Being Done To Make Sure This Does Not Happen Again?
By Robert S. Schriebman
June 10, 2015
Introduction
It’s been headline news since end of May 2015: almost 104,000 American taxpayers, both individual and businesses have fallen victim to one of the most sophisticated theft schemes in U.S. Treasury Department history. The theft involves the IRS’s online “Get Transcript” application process. The theft started in February 2015 but was not caught until May 2015. Billions of tax dollars now reside in offshore bank accounts.
How did this happen? What’s being done to protect the American Taxpayer?
The Breach
In May 2015, while investigating a suspected denial-of-service attack on the application of the IRS’s online “Get Transcript” process. The IRS noticed that a large number of suspicious domains were being used to access an unusual peak in the volume of tax transcript requests. IRS investigators determined that there were attempts to grab almost 200,000 transcripts and the data therefrom. Out of the 200,000 attempts more than half, 104,000 were captured. The IRS stopped its online application process.
About 23 million American taxpayers obtain their transcripts online. The IRS Commissioner responded to inquiries by the Senate Finance Committee that only a little more than 100,000 transcripts have been compromised. If that is supposed to make us feel better, I am not buying into it. Those 100,000 innocent taxpayers are going to be greatly inconvenienced, and their potential tax refunds may take as long as two years before they see the money.
I regularly obtain transcripts on behalf of my clients. I always order them through direct contact with an employee of the IRS. I intentionally keep my clients away from doing things online because I have always been afraid that a tragedy like this one could happen.
Types of Transcripts
There are four types of transcripts available to the public from the IRS. Let’s briefly look at them.
- Tax Return Transcript – This transcript shows the detail stated in a specifically filed tax return. When you file your return electronically IRS agents use this transcript to see return detail. However, this transcript does not show a photocopy of the actual return. This is why examining agents always request a hardcopy of your return.
- Tax Account Transcript – This transcript shows very limited detail such as the type of return, taxable income and marital status. This type of transcript is rarely used by practitioners.
- Record of Account Transcript – This is the most popular transcript with attorneys and accountants. Most likely this is the category of transcript sought by identity thieves.
- Wage and Income Transcript – This transcript is used in the preparation of back tax returns when a client’s records are of poor quality. These transcripts only show W2, government benefit payments, such as social security, and 1099 input. They are of limited use and are useless to identity thieves as they do not show refunds pending.
What Is Being Done To Prevent Breaches of This Type From Reoccurring
IRS Commissioner John Koskinen has been working closely with Senator Orrin Hatch, Chairman of the Senate Finance Committee and Paul Ryan, Chairman of the House Ways and Means Committee to investigate and design systems to protect what is known as Stolen Identity Refund Fraud (SIRF). “We will be writing to you on that matter separately in the coming days, but a key concern of the committee is the growing threat of SIRF to tax administration. This concern will only be amplified due to the recent IRS breach,” wrote Hatch.
I have been following the developments of this matter on a daily basis. I have learned that every year more than 140 million individual income tax returns and almost 6 million corporate returns are filed. This does not take into account millions of quarterly business payroll tax returns that are also filed. Members of Congress are doing their own individual investigations into the method by which computer and online tax preparation services, as well as major pre-paid debit card providers, screen for SIRF.
So far no one has any concrete answers or solutions except to identify organized crime as the culprits. These criminals are using very sophisticated hacking and are depositing your refunds in offshore foreign bank accounts.
The IRS recently published “Get Transcript Application: Questions and Answers.” One of the questions is “What should people do to protect themselves?” Here is what the IRS said:
“Identity theft is just one of many reasons why people should think twice before posting publicly personal or financial information on social media or the Internet. People should also make sure their computers are up to date with the latest security software.”
I take no comfort from the above comment.
Conclusion
Senate Finance Committee ranking member Ron Wyden has stated “In fact, there is reason to believe the IRS will be more frequently targeted in the future.” Mr. Wyden added that in order to protect taxpayers from “this onslaught of cybercrime, the IRS needs a 21st-century IT system.” Unfortunately Congress, in its wisdom, has reduced IRS funding for cybersecurity from $187 million in 2011 to $149 million in 2015. And we the American taxpayers may be paying the price. The usual government response to a crisis is to demand more funding.
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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure”, both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure”, both published by Commerce Clearing House.