No one can fully guarantee the security of personal information. What can be done is take all possible precautions to physically and electronically protect personal information. When you take your personal information to a tax professional, you expect them to only use your information for tax preparation purposes. You also expect that your personal information will be securely stored both physically and electronically. In this episode I will explain policies and procedures a tax professional should have in place to protect your data from both physical attacks and electronic attacks. I will make suggestions of what you can ask before even providing your information to a tax professional
Several times during tax season we electronically file a client’s tax return, only to learn that one of the client’s legal dependents was claimed falsely on another tax return. Sometimes this is due to identity theft, which will be discussed in another blog. More often this situation arises because an ex-spouse, a grandparent, or another ineligible family member has the child’s information and claims the child, even though they did not have the child for at least 6 months or provide 50% or more of the child’s support. Unfortunately, many tax preparers simply tell their clients that there is nothing that can be done since the child has already been claimed. Such a statement is wrong and misleading, because there are procedures we can take that will allow you to get the tax credits you deserve as the custodial parent.
How can you get the tax credits for your qualified child? When the taxpayer enters our office or schedules a video conference with this problem we discuss with them how the problem can be fixed. We suggest the taxpayer gather documents that support their claiming the child. Once these documents are gathered, we attach the documents to the prepared tax return. We have the taxpayer then mail the tax return to the proper IRS office.
In about 6 to 8 weeks the taxpayer receives their refund from the IRS. Occasionally, the IRS may request additional documents to support your claiming the child. The IRS then will allow your claiming the child and give you the tax credits. Then the IRS will contact the taxpayer who falsely claimed the child and request payment back of any tax benefits received from claiming a child they were not eligible to claim.
There is no race to see who can claim the child first. The tax law plainly states that the qualified taxpayer is the party that can properly and legally claim a child on a tax return.
When we enter a tax preparer’s office for the first time, we are unknown and have to provide not only our W-2’s and/or business records, we often need to provide copies of prior years tax returns, social security cards for all family members, birth certificates, and other highly personal and private information. The office either makes paper copies or scans the information into some type of electronic filing cabinet. In this era of rampant identify theft, often times we hesitate to provide such information, wondering how secure will our private information be in this accountant’s office. This concern is very valid as hackers are trying to penetrate accountant’s systems now more than ever, because of the amount of private information that is contained in accountant’s computers. How can you as the tax client know how secure your information is? What steps should a tax office take to protect client data?
Second, what physical measures are in place to protect client data? Does the office have a security system with 24-hour monitoring? Not only does this office have 24-hour monitoring, we also place any physical client data in locked desks and file cabinets at the close of business each night. During business hours client data is kept out of sight of any outside parties entering the office for assistance. All original information is returned to the client. Any physical copies no longer needed are shredded into confetti.
Third and probably the most important step is how data is protected electronically. All paid preparers are required by IRS publication 4557 to maintain a written electronic security policy. In harmony with the IRS direction, my office uses a quality internet security software suite that provides a firewall, anti-virus protection, and malware protection. To maintain security at a high level, our router and switch were recently upgraded. High risk and threatening websites are blocked, so employees cannot access places they should not be going. Employees are well trained on the “No-Click Policy”. This policy reduces risk by not allowing the clicking on links and attachments in emails. All clients are required to submit tax information by physical delivery, fax, or by upload to their client portal. Next, what kind of backup systems are used? In the event of disaster, theft, or data loss, will the office be able to restore my data? We keep multiple on and off site secure backups. One last necessary action is complete hard drive encryption. All computers used to access client information must use hard drive encryption. Without hard drive encryption a desktop or laptop computer is vulnerable if physically stolen. Computers that have hard drive encryption require a password even before the operating system, such as Windows 10, starts.
Warning: No system is 100% safe from a data breach. We do take all the precautions possible to protect and maintain client data in the best and most secure environment that we possibly can.
For the security and safety of your data, it is vital that you check with your accountant on the steps they take to protect and secure client data. Click here for my podcast.
With tax season in full-swing, millions of Americans have begun the arduous process of filling out their Federal and State returns. The IRS estimated that Americans spent six billion hours filing returns last year, which begs the question: is a 4 million-word Federal tax code full of new regulations and guidelines necessary?
Renowned publishing executive and two-time Republican Presidential candidate, Steve Forbes, believes it is not. “We need radical tax reform,” he says.
Forbes, who has long been a vocal advocate for the “Flat Tax,” joined The Costa Report to explain just how complex the current tax system has become. He says the 4 million-word code is the tip of the iceberg because it doesn’t take into account millions of additional pages of interpretations, analysis, legal rulings, and other data experts must navigate to comply with the law. According to Forbes, growing complexity has increased the number of errors reported. He pointed to a recent government investigation which discovered that agents who monitor the IRS Hotline were wrong 20-30% of the time, and the IRS taxpayer assistance program had a 61% error rate.
Forbes says the “current code is beyond redemption,” and strongly urges government leaders to adopt a “Flat Tax” system. When asked whether he would support a “Fair Tax,” which would replace income taxes with a higher sales tax, Forbes made the point that a “Flat Tax” on income is more feasible and fair than the proposed “Fair Tax.” He cited four reasons why the “Fair Tax” is problematic. First, the government would be required to raise sales taxes to a very high rate to make up for lost income and payroll tax revenues. According to Forbes, this would discourage consumer spending and cause the economy to suffer. Second, the government would need to institute a way of distinguishing business purchases from personal purchases, as businesses are taxed differently. (How would the government determine whether an individual purchased office supplies for their personal use, or for use in their business?) Third, the “Fair Tax” assumes the government would pay itself taxes on the purchases it makes. The government is one of the largest spenders in the economy â if it failed to pay itself a sales tax on its own purchases, there would be a shortfall in revenue. And finally, the 16th Amendment of the U.S. Constitution, which gives government the power to impose taxes, would allow Congress to institute a “Fair Tax” without completely eliminating the income and payroll tax. So, in order for the “Fair Tax” to work, the 16th Amendment would have to be repealed â a move Forbes says is unlikely.
On the other hand, the “Flat Tax” can be instituted with no repeal of a Constitutional Amendment. The “Flat Tax” would require all taxpayers to pay a single fixed-rate regardless of their income, “with generous exemptions for adults and children below a certain income level.” Forbes points out that “A family of four, for example, would pay NO federal income tax on their first $52,000 in wages.”
On the business side, Forbes proposes cutting the current tax rate from 35% to 17%, a move he says will help revitalize the American economy. “When you have high income tax rates, you don’t get the kind of investment that is necessary for a productive economy,” claimed Forbes. “What a flat tax does … is it does not punish productive work, risk taking, or success.”
To listen to the full interview with Steve Forbes HERE.