Preparers must know laws, regulations for safeguarding taxpayer data

TaxSlayer Pro tax preparers must be aware of laws and regulations to protect taxpayer data from identity theft. The federal, state, city and local mandates are just as important to know as are the practical steps for safeguarding personally identifiable information and reporting security breaches.

A brief overview of the federal laws can be found below. For more detailed information, consult IRS Publication 4557.

  • The Safeguards Rule requires financial institutions including professional tax preparers to have measures in place to keep customer information secure and confidential. Financial institutions are required to develop an Information Security Plan with administrative, technical and physical safeguards.
  • The Sarbanes-Oxley Act of 2002 requires all Securities and Exchange Commission reporting companies with a market capitalization in excess of $75 million to establish an infrastructure to protect and preserve records and data from destruction, loss, unauthorized alteration or other misuse.
  • The FTC Privacy of Consumer Financial Information Rule requires tax preparers and other financial institutions to provide their customers privacy notices that explain the institution’s information collection and sharing practices. Customers have the right to limit some sharing of their information.
  • Title 26: Internal Revenue Code 301.7216.1 imposes criminal penalties on any person engaged in preparing tax returns or connected services who knowingly or recklessly makes unauthorized disclosure or uses of information provided to them for tax preparation.
  • Title 26: Internal Revenue Code 6713 imposes monetary penalties on the unauthorized disclosure or uses of taxpayer information by any person engaged in preparing tax returns or connected services.
  • Internal Revenue Procedure 2007-40 requires Authorized IRS e-file Providers to have security systems to prevent unauthorized access to taxpayer accounts and personal information by third parties.

The federal laws and regulations include important details that tax preparers should review. Additionally, there are state laws that businesses must follow to protect taxpayer privacy and security.