This blog was last updated on June 27, 2021
While governments around the world are calling for more transparency and compliance when it comes to taxes, both domestic and abroad, citizens have their own batch of concerns. Most notably, there are an increasing number of American citizens who are nervous about the security of modern tax methods.
Most tax filing is done digitally these days. There is no question that digital efforts save both consumers and tax-regulating bodies time and money, but they also expose taxpayer information to cybercriminals or hackers. With a number of major hacks taking place in the past few years, there is no wonder why citizens share this fear.
Survey reveals concerns
A recent study by Taxsoftware.com revealed 70 percent of American citizens were concerned about the security risksinvolved with filing taxes on their computers this past tax filing season. The percentage was almost as high for those using tablets or smartphones as well. These results are much higher than when the survey was first conducted in 2012, when only 52 percent were concerned of security issues when using a computer.
“An increasing number of Americans are concerned about tax data security risks.”
The survey was conducted from February 8-10 and included 6,500 adults.
“The rise in concern by taxpayers is to be expected, given the recent headlines about computer hacking and data theft,” said Mickey Macedo, spokesperson for Taxsoftware.com. “In one respect, the IRS is actually encouraging the theft of private financial information by providing a free e-file service that allows criminals to repeatedly guess at taxpayer information. This allows hackers to steal refunds at no cost, and at little risk to themselves.”
But these concerns are not limited to those citizens living in the U.S. As the Foreign Account Tax Compliance Act (FATCA) reaches across the globe in an effort to streamline and simplify tax filing for citizens, governments and financial organizations, some industry professionals worry that this is creating a great deal of risk for compliant taxpayers.
Cybersecurity not at its best
A main issue consumers have is that by complying with FATCA, a significant amount of taxpayer information is now being transferred through digital portals from country to country. And as noted by the Cayman Financial Review, the U.S. government doesn’t have the greatest track record when it comes to securing itself from cyberattacks.
For instance, the source highlighted attacks that happened in the last few years, such as to the Army Corps of Engineers database, which had sensitive infrastructure data on 85,000 of the nation’s dams stolen in 2012. Additionally, the Emergency Alert System was hacked into in 2013 after road signs were altered. And when it comes to the Internal Revenue Service, the number of incidents doesn’t drop off. In fact, in every year since 2008 the Government Accounting Office has located at least 100 cybersecurity weaknesses within the agency. One example is repeatedly failing to encrypt data, and when dealing with global tax compliance, failing to encrypt data cannot be happening.
However, the IRS has established a system that is unique to FATCA, known as the International Data Exchange Service, or IDES. The goal is to utilize a system specifically for FATCA to keep information secure. With the agency’s track record, industry professionals are wary of giving complete trust to the system.
FATCA provides the IRS with more private taxpayer information than ever before. Further, there are times when the information isn’t even given directly to the IRS, but run through local governments’ compliance policies as well. This is a great deal of sensitive information to send around, and everyone involved is not as comfortable as the IRS in regard to security standards.
According to Angloinfo, a global expat network, the treasury inspector general for Tax Administration shared concerns regarding the security of data transmission with the IRS. Additionally, the IRS had to issue a fraud alert in September 2014 to all international financial institutions complying with FATCA. The reason was that a number of scam artists pretending to be IRS officials had sought information pertaining to account holder identities and account information.
