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A CPA’s Nightmare: Lessons Learned from Navigating a Data Breach During Tax Season

In the world of tax professionals, there’s a saying: “It’s not a matter of if, but when.” This adage, once reserved for IRS audits, now applies to a far more menacing threat: data breaches.

Tax firms possess a trove of sensitive client information, including Social Security numbers, bank account details, and past tax returns. This comprehensive data makes tax professionals prime targets for cybercriminals looking to commit identity theft and file fraudulent returns.

In this Federal Tax Updates podcast episode, Roger Harris interviews Catharine Madeley, a CPA from Austin, Texas, who shares her firsthand experience of a data breach at her firm. Catharine’s story underscores the urgent need for tax professionals to prioritize cybersecurity in an evolving threat landscape.

This article explores why tax professionals are prime targets for cybercriminals, the real-world consequences of a data breach, and how practitioners can effectively prevent, detect, and respond to cyber incidents.

The Consequences of a Data Breach

Catharine shared the details of the breach at her firm, which occurred right before the September 15th filing deadline, one of the busiest times for tax professionals. The breach’s timing amplified Catharine’s already immense stress and workload, forcing her to navigate the incident response while still serving clients.

The impact of a data breach extends far beyond the initial incident. A breach can erode client trust, lead to legal liability, and threaten the very existence of a tax practice.

Catharine’s firm had to dedicate significant time and resources to investigate the scope of the breach, communicate with affected clients, and implement protective measures. The personal toll was also substantial, with Catharine barely sleeping for a month as she juggled the incident response with her normal workload.

Shifting the Mindset on Cybersecurity

Many tax professionals treat data security as a mere checkbox exercise rather than a critical, ongoing priority. As Roger notes, “We’re all aware that when we renew our PTIN, we have to check a box saying we’re supposed to have a written plan. But I think sometimes we don’t take it seriously. We write a plan to have a written plan, not to have data security.”

To navigate the evolving threat landscape, practitioners must embrace cybersecurity as an ethical imperative and invest in robust measures, response plans, and continuous education. This involves:

  • Implementing strong technical controls, such as encryption, firewalls, and multi-factor authentication
  • Regularly training staff on cybersecurity best practices and phishing awareness
  • Developing and testing incident response plans to ensure prompt, effective action in the event of a breach
  • Staying informed about emerging threats and trends through continuous learning and collaboration with cybersecurity experts

Responding to a Breach with Transparency and Expertise

After her firm’s breach, Catharine followed her written security plan, immediately contacting insurance, law enforcement, and the IRS. She recounts, “Stepping back, the first call I made was to insurance. I also went down that written information security plan list: call your state attorney general, call law enforcement, call the IRS.”

Catharine’s cyber insurance provided access to expert resources to investigate the breach and guide her response, underscoring the value of proactive preparation. Catharine maintained trust and strengthened relationships amid the incident by transparently communicating with clients and offering guidance on protective measures.

Catharine’s experience also highlights the importance of leveraging the IRS’s identity theft resources for tax professionals. By promptly registering exposed taxpayers with the IRS, firms can prevent fraudulent returns and protect clients and themselves.

Safeguarding Your Practice in the Face of Evolving Threats

Catharine’s story is a powerful reminder that no tax professional is immune to cybersecurity threats. To protect sensitive client data and uphold public trust, practitioners must shift their mindset, prioritizing cybersecurity as an ongoing, top-level concern.

As the cybersecurity landscape continues to evolve, tax professionals have a choice: view data security as a burdensome requirement or embrace it as an opportunity to strengthen client relationships and differentiate their services. By choosing the latter, practitioners can protect taxpayers and uphold the profession’s integrity.

Listen to the complete Federal Tax Update podcast episode to learn more about Catharine’s experience and gain valuable insights for safeguarding your practice.

Form 4868: Extension of Time To File U.S. Individual Income Tax Return

In this episode, Roger and Annie discuss the most recent IRS updates and recommendations for tax preparers dealing with the surge of inaccurate ERC claims. They also provide some detailed insights into filing extensions for clients.

Sponsors
Padgett -  https://www.padgettadvisors.com/join/?podcast 


Get NASBA Approved CPE or IRS Approved CE
Launch the course on EarmarkCPE to get free CPE/CE for listening to this episode.

Links mentioned in this episode
Form 4868 - https://www.irs.gov/pub/irs-pdf/f4868.pdf

Chapters

  • (00:00) - Federal Tax Updates Episode 06
  • (02:23) - Employee Retention Credit Extention and Updates
  • (15:46) - Updates on personal tax extentions
  • (28:40) - What are the penalties associated when failing to file?
  • (42:04) - Recent IRS tax news
  • (44:40) - RMD deadline updates
  • (49:46) - Future topics on the Federal Tax Updates Podcast
Follow the Federal Tax Updates Podcast on Social Media
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Connect with the Hosts on LinkedIn
Roger Harris
Annie Schwab

Review
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This podcast is a production of the Earmark Media

The full transcript for this episode is available by clicking on the Transcript tab at the top of this page

Breaking Down the SECURE Act 2.0

Roger and Annie discuss the changes in the SECURE 2.0 Act of 2022 and how this impacts small business owners with regards to offering retirement plans to their employees. They also talk about recent changes in IRS regulations that could prove beneficial to taxpayers dealing with ERC.

Sponsors
Padgett -  https://www.padgettadvisors.com/join/?podcast 


Get NASBA Approved CPE or IRS Approved CE
Launch the course on EarmarkCPE to get free CPE/CE for listening to this episode.

Links mentioned in this episode

Chapters

  • (00:00) - Federal Tax Updates E5
  • (01:57) - SECURE Act 2.0
  • (08:03) - Omnibus Package
  • (11:30) - How can the SECURE Act help small business owners?
  • (16:48) - In 2025 what changes could we see to retirement plans?
  • (19:15) - Different ways to get around the 10% penatly with retirement money
  • (24:08) - What is attractive about a starter 401k plan?
  • (26:03) - How the Secure Act is tying in Student loan forgiveness
  • (27:59) - What does the Secure act say about RMDs?
  • (32:40) - What can you do with money that is left in a 525 Plan?
  • (40:19) - What is happening to the IRS with the ERC
  • (46:26) - Potential P10 Refund
  • (47:13) - News on information returns
  • (51:39) - CPE Tax Forums
Follow the Federal Tax Updates Podcast on Social Media
twitter.com/FedTaxPod
facebook.com/FedTaxPod
linkedin.com/showcase/fedtaxpod

Connect with the Hosts on LinkedIn
Roger Harris
Annie Schwab

Review
Leave a review on Apple Podcasts or Podchaser

Subscribe
Subscribe to the Federal Tax Updates podcast in your favorite podcast app!

This podcast is a production of the Earmark Media

The full transcript for this episode is available by clicking on the Transcript tab at the top of this page

Tip Jars – Where Policy and Politics Collide

On this episode of Federal Tax Updates, Annie and Roger focus on tips (the monetary kind), including an industry overview, current challenges with tip reporting, and tip credits. They also examine Notice 2023-13, and the proposed procedure that would establish the Service Industry Tip Compliance Agreement (SITCA) program and talk tax policy and politics.

Sponsors
Padgett -  https://www.padgettadvisors.com/join/?podcast 


Get NASBA Approved CPE or IRS Approved CE
Launch the course on EarmarkCPE to get free CPE/CE for listening to this episode.

Links mentioned in this episode
Federal eRulemaking Portal - https://www.regulations.gov/

Chapters

  • (00:00) - Federal Tax Update Episode 4
  • (04:42) - Changes in tipping in recent years
  • (14:28) - Are you supposed to report tips?
  • (22:05) - How tip pooling in restaurants works
  • (37:09) - How much longer does tipping survive?
  • (38:21) - New updates from the IRS
Follow the Federal Tax Updates Podcast on Social Media
twitter.com/FedTaxPod
facebook.com/FedTaxPod
linkedin.com/showcase/fedtaxpod

Connect with the Hosts on LinkedIn
Roger Harris
Annie Schwab

Review
Leave a review on Apple Podcasts or Podchaser

Subscribe
Subscribe to the Federal Tax Updates podcast in your favorite podcast app!

This podcast is a production of the Earmark Media

The full transcript for this episode is available by clicking on the Transcript tab at the top of this page

Don’t Miss These Deductions or Credits

Roger and Annie discuss Congress and IRS roles when it comes to taxes, how tax code is used to encourage behaviors, how tax policy scoring works, and explain deductions versus credits.

Sponsors
Padgett -  https://www.padgettadvisors.com/join/?podcast 


Get NASBA Approved CPE or IRS Approved CE
Launch the course on EarmarkCPE to get free CPE/CE for listening to this episode.

Links mentioned in this episode

Chapters

  • (00:00) - Federal Tax Update E3
  • (02:29) - Don't miss the Deductions on Credits on your Tax Return
  • (10:41) - How tax policy is scored?
  • (16:12) - Limitations of Deductions and Credits
  • (19:10) - Do you take a standard deduction or a Itemized deduction?
  • (23:17) - Deductions on Charitable Donations
  • (25:37) - Gift Tax Returns
  • (29:21) - Education Credits
  • (36:26) - Sole Proprietorship Deductions
  • (41:11) - Refundable Credits
  • (43:26) - What does it cost to raise a child?
  • (47:11) - Updates on the Employee Retention Credit
Follow the Federal Tax Updates Podcast on Social Media
twitter.com/FedTaxPod
facebook.com/FedTaxPod
linkedin.com/showcase/fedtaxpod

Connect with the Hosts on LinkedIn
Roger Harris
Annie Schwab

Review
Leave a review on Apple Podcasts or Podchaser

Subscribe
Subscribe to the Federal Tax Updates podcast in your favorite podcast app!

This podcast is a production of the Earmark Media

The full transcript for this episode is available by clicking on the Transcript tab at the top of this page

State of the IRS

Who is the Taxpayer Advocate, what do they do, what was in their latest report, what does this report mean, and how can tax practitioners assist in these efforts?

Sponsors
Padgett -  https://www.padgettadvisors.com/join/?podcast 


Get NASBA Approved CPE or IRS Approved CE
Launch the course on EarmarkCPE to get free CPE/CE for listening to this episode.

Links mentioned in this episode
Taxpayer Advocate Service (TAS)

Chapters

  • (00:00) - Federal Tax Updates Episode 2
  • (01:35) - Introduction : Tax season has officially begun
  • (03:57) - What is the taxpayer advocate service?
  • (13:43) - The IRS did a poor job of answering phone calls in 2022
  • (23:26) - The divided Congress will make it harder to pass tax laws at the moment
  • (27:21) - Chapter 6
  • (31:51) - E-filing over paper filing returns & making direct deposits
  • (35:43) - Changes to the IRS take time, be patient
  • (43:50) - Wrap up and remember a lot of tax exemptions are reverting to pre-covid ways. Be prepared for those tough client talks
Follow the Federal Tax Updates Podcast on Social Media
twitter.com/FedTaxPod
facebook.com/FedTaxPod
linkedin.com/showcase/fedtaxpod

Connect with the Hosts on LinkedIn
Roger Harris
Annie Schwab

Review
Leave a review on Apple Podcasts or Podchaser

Subscribe
Subscribe to the Federal Tax Updates podcast in your favorite podcast app!

This podcast is a production of the Earmark Media

The full transcript for this episode is available by clicking on the Transcript tab at the top of this page


Tax Season Kickoff

Kick off tax season with the Inflation Reduction Act of 2022, the Employee Retention Credit, K-2s and K-3s, the latest 1099s changes, and updates to tax brackets, standard deductions, and mileage rates. Join Roger and Annie for this premier episode of Federal Tax Updates!

Sponsors
Padgett -  https://www.padgettadvisors.com/join/?podcast 


Get NASBA Approved CPE or IRS Approved CE
Launch the course on EarmarkCPE to get free CPE/CE for listening to this episode.

Links mentioned in this episode
Accounting Today - The Year Ahead: Top challenges for 2023

Chapters

  • (00:00) - FedTax Episode 1
  • (01:49) - Introducing your hosts: Annie and Roger
  • (02:52) - Opportunities and challenges for the upcoming tax season
  • (04:06) - Inflation Reduction Act of 2022
  • (08:29) - Changes in tax brackets
  • (09:23) - Updates on Standard Deduction
  • (10:04) - Mileage rate changes for 2023
  • (13:20) - Employee Retention Credit opportunity still exists
  • (22:28) - How COVID impacts the nexus state tax implications
  • (23:07) - Talent issues within the accounting industry
  • (24:40) - Emergence of "Quiet Quitting"
  • (26:57) - Challenges in reporting K-2's and K-3's
  • (31:34) - The problems that arise when reporting cryptocurrency
  • (33:45) - Roger's thoughts on recent 1099 events
  • (43:02) - Omnibus spending package

Follow the Federal Tax Updates Podcast on Social Media
twitter.com/FedTaxPod
facebook.com/FedTaxPod
linkedin.com/showcase/fedtaxpod

Connect with the Hosts on LinkedIn
Roger Harris
Annie Schwab

Review
Leave a review on Apple Podcasts or Podchaser

Subscribe
Subscribe to the Federal Tax Updates podcast in your favorite podcast app!

This podcast is a production of the Earmark Media

The full transcript for this episode is available by clicking on the Transcript tab at the top of this page


The Best Tax Podcast for CPAs, EAs, and Tax Preparers

Links mentioned in this episode

Follow the Federal Tax Updates Podcast on Social Media

Connect with the Hosts on LinkedIn
Roger Harris
Annie Schwab

Review
Leave a review on Apple Podcasts or Podchaser

Subscribe
Subscribe to the Federal Tax Updates Podcast in your favorite podcast app!

This podcast is a production of the Earmark Media
Full transcript available upon request.

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