Title 26 U. S. Code Section 6103(p)(4) requires external agencies and other authorized recipients of federal tax return and return information (FTI) to establish procedures to ensure the adequate protection of the FTI they receive. That provision of the Code also authorizes the Internal Revenue Service (IRS) to take actions, including suspending or terminating FTI disclosures to any external agencies and other authorized recipients, if there is misuse and/or inadequate safeguards in place to protect the confidentiality of the information. Internal Revenue Code (IRC) Section 7213 prescribes criminal penalties for federal and state agencies and others (e.g., agents and contractors) in receipt of FTI that make illegal disclosures of the FTI. IRC Section 7213A makes the unauthorized inspection of FTI a misdemeanor punishable by fines, imprisonment, or both. Also, IRC Section 7431 prescribes civil damages for unauthorized inspection or disclosure of FTI and upon conviction, the party must notify the affected taxpayers that an unauthorized inspection or disclosure of their information has occurred.
To address the need to properly protect FTI, the Internal Revenue Service (IRS) issued Publication 1075 Tax Information Security Guidelines For Federal, State and Local Agencies. The publication prescribes the required safeguards for protecting FTI and provides guidance in ensuring that the policies, practices, controls, and safeguards employed by recipient agencies or agents and contractors of FTI adequately protect the confidentiality of the information.
Publication 1075 requires that enterprise security policies address the purpose, scope, responsibilities, and management commitment in implementing all applicable security controls. It also contains managerial, operational, and technical security controls that should be implemented as a condition of receiving and retaining FTI.
To assist firms comply with the requirements contained within Publication 1075 and avoid penalties prescribed in IRC 7213 and 7431, Schneider Downs offers a service to help firms assess potential control gaps in how they secure FTI.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.