Safeguarding sensitive financial information and protecting clients’ personal data has become increasingly relevant in the tax industry. To help mandate secure practices, the IRS has set forth requirements for tax preparers to safely manage and store private information. Tax preparers can avoid unauthorized access and data breaches, which pose significant risks for both preparers and clients, by remaining educated on these requirements and upholding them in their services.  

Unfortunately, in the modern digital age, cybercriminals actively seek vulnerabilities to exploit; since tax preparers deal with a wealth of sensitive information, they are prime targets for such fraudulent behavior. The consequences of a security breach can be extensive, damaging both the reputation of the tax preparers involved and engendering financial and emotional distress for clients. In this post, we aim to provide a guide for tax professionals, to make compliance with IRS security requirements easier and fortify their practices against potential sources of threat. 

Assessing Existing Security Measures 

Conducting an intensive assessment of your current security protocols may not be enforced by the IRS, but it is a vital precursor to ensuring compliance with other IRS requirements. In evaluating your present standards and identifying possible areas of vulnerability, you can proactively address any weaknesses and enhance the security of your clients’ data. Facilitating these assessments regularly allows you to intentionally avoid threats and maintain robust security procedures. 

A great place to begin is reviewing your electronic systems, including hardware, software, and network infrastructure. Be cognizant of any outdated software or insufficient security measures that may put your information at risk. You can significantly reduce the chances of malicious attempts at exploitation by promptly updating any expired software and applying security patches.  

In addition to electronics, assess the physical plans in place to protect sensitive data. Analyze any restricted areas and locked filing cabinets to ensure that they are accessible only by authorized personnel. Likewise, examine the methods of disposal for physical records, making sure that confidential information is properly discarded to prevent unauthorized data acquisition.  

Finally, we recommend assessing the overall effectiveness of your existing security policies and procedures. By administering comprehensive assessments, tax preparers can identify areas that are in need of improvement and implement subsequent security measures to address those areas. It is crucial to approach these analyses with a strategic mindset, considering all possibilities and seeking continuous improvement to maintain the utmost security standards for the benefit of your clients.  

Establishing Written Security Policies  

After examining your current practices, you can establish written security procedures, which is an IRS requirement for tax professionals. These policies serve as an official structure to guide and enforce measures of security within the process of tax preparation. By implementing clear guidelines, tax preparers can ensure consistency of security protocols and mitigate the risk of breaches of taxpayer information. 

An efficient security policy should include several elements. First, your procedure should designate the classification of data based on its level of confidentiality. By creating a hierarchy of data organization, tax preparers can apply appropriate measures based on the security classification of information. Second, risk assessments are another critical component of written policies. Plan to regularly assess and identify areas of potential weaknesses, so that you can address gaps in security ahead of time and formulate a new course of action. 

After that, written security policies should include incident response plans. What action do you plan to take in the event of a security incident or data breach? By establishing and effectuating your answer, you can promptly address such incidents and ultimately minimize their impact. Where possible, we recommend delegating tasks to individuals within your organization to oversee responses to security episodes, as well as instituting protocols for communication so that information is reported in a timely manner. 

Tax preparers can demonstrate their commitment to safeguarding client information and maintaining security in their workplace context by implementing written security procedures. Additionally, it’s essential to regularly review and update these policies to adapt to evolving threats and ensure ongoing compliance with IRS standards.  

Securing Electronic Systems  

After utilizing a system of written procedures, the next step to complying with IRS requirements is to secure electronic systems. The protection of online functions is paramount in safeguarding sensitive taxpayer information. Tax preparers can assuage client distress regarding data breaches and avoid such incidents by implementing robust security measures that deter unauthorized access to clients’ personal information. It is necessary to remain vigilant and intentional in ensuring the security of electronic systems, especially as technology continues to develop.  

One primary aspect of securing your electronics is the use of up-to-date software. Tax preparers should regularly update software with the latest security patches and updates, which helps protect clients against online vulnerability. Similarly, reliable antivirus and anti-malware software adds an extra layer of protection against potential harm. 

Another critical consideration is the use of strong passwords and measures of authentication. Strong passwords are characterized by uniqueness, complexity, and frequency of change. Many platforms that require passwords utilize other measures of authentication, such as requiring a code input from an alternative form of communication in addition to a password. These contributions add additional levels of security by requesting multiple forms of verification and making it difficult for hackers to determine your passwords. 

One final component of securing your electronic systems is employing the use of encryption. Even if encrypted data is intercepted or accessed without authorization, it remains protected and unreadable by unauthorized parties. Secure file transfer protocols (SFTP) and whole disk encryption are commonly used methods to defend sensitive client information during both transmission and storage. 

By diligently enacting these measures, tax preparers can increase the protection of their electronic systems and significantly reduce the risk of unauthorized access to sensitive client information. To read more, visit the Tax Security 2.0: The Taxes-Security-Together Checklist posted by the IRS and other tax industry partners. Covering the basics of cybersecurity for tax professionals, members of the Security Summit have compiled this checklist which further recommends the use of two-factor authentication, firewalls, data encryption, and more. 

Safeguarding Physical Information  

While securing electronic systems is crucial, tax preparers must also emphasize protecting physical information that contains sensitive data. Physical safeguards are vital in defending client information from inadvertent disclosure, as well as adhering to IRS requirements for tax preparer security.  

One initial step to preserve physical data is to ensure the proper storage of documents. Consider utilizing lockable filing cabinets or restricted access areas to store documents containing sensitive information. By limiting access to authorized personnel only, tax preparers can minimize the risk of unauthorized individuals gaining access to confidential taxpayer records. 

It is equally important to establish a protocol for the disposal of physical documents. Whether you prefer shredding or another form of secure destruction, these methods prevent unauthorized retrieval of discarded records. Tax professionals can reduce the volume of physical information they possess by consistently purging outdated or unnecessary documents, which serves to eliminate any risks of retaining physical documents, as well. 

It may be worthwhile to also implement rules for copies or the removal of physical documents, depending on your specific circumstances. The key is to think through many possible scenarios to plan well for the future and ensure that client information remains secure, preserving data confidentiality.  

By prioritizing the safety of physical information, tax preparers can maintain the privacy of client data. With a combination of robust electronic system security with comprehensive physical measures, tax professionals can cultivate a holistic approach to protecting client information throughout the process of tax preparation and remain compliant with IRS guidelines. 

Staying Informed and Updated  

A final recommendation is to stay informed and updated on the latest security trends, IRS requirements, and industry best practices. Cybersecurity threats are constantly advancing, but tax preparers can address that challenge by actively engaging in ongoing education and professional development.  

The IRS provides many valuable resources to help educate tax preparers. Publications, webinars, and online resources offer expert insights into the latest security requirements, guidance on implementing effective security measures, and updates on emerging threats. A great example is Publication 4557, a guide written by the IRS that provides a more comprehensive overview into safeguarding client data. It includes a glossary of security terms and a deeper dive into IRS security regulations. This resource offers additional recommendations to train tax preparers for security procedures, such as monitoring your PTIN account, recognizing phishing scams, and policies for reporting the loss of data. 

Another excellent tool is cybersecurity awareness programming which provides training on addressing and deescalating risks to security. Tax preparers can participate in these programs to develop a security-conscious approach to their roles and support the protection of client data. 

Finally, networking and collaboration with other tax preparers and industry professionals can provide unique understandings of current security measures and emerging trends. There are endless benefits to engaging in professional associations, attending industry conferences, and participating in discourses that share perspectives and exchange knowledge.  

By actively seeking relevant information, participating in training opportunities, and connecting with industry peers, tax preparers can remain conscientious of security requirements and emerging threats. Staying informed enables tax professionals to continually enhance their security measures, protect taxpayer data, and maintain compliance with IRS security requirements. 

After exploring IRS security requirements for tax preparers and the imperative need to protect client data in the preparation of taxes, we hope you feel confident in conducting assessments of your current security measures and establishing new policies where necessary. Essential measures of protecting client information include robust authentication protocols, electronic network security, protection of physical documentation, and staying up to date with current regulations. Tax preparers can fortify their practices, protect client confidentiality, and make strides toward maintaining compliance with the IRS by implementing these recommendations.