IRS Guidance For Securing Tax Customer Data 

The subject of safeguarding customer data, and the compliance information from the IRS, have been covered in a post to the Taxing Subjects Blog (see http://taxingsubjects.com/tag/drake-software). 

The IRS has now reviewed its rules for securing data, mandating six (6) security, privacy, and business standards to better serve taxpayers and protect their information collected, processed and stored by Online Providers of individual income tax returns.  This information can be found online here. 

Individual income tax returns generally refer to the 1040 family of returns. Refer to the IRS Publication 3112, IRS e-file Application and Participation, for definition of Online Provider. 

These standards are intended to supplement the Gramm-Leach-Bliley Act and the implementing rules and regulations promulgated by the Federal Trade Commission. 

The security and privacy objectives of these standards are: setting minimum encryption standards for transmission of taxpayer information over the internet and authentication of Web site owner/operator’s identity beyond that offered by standard version SSL certificates; periodic external vulnerability scan of the taxpayer data environment; protection against bulk-filing of fraudulent income tax returns; and the ability to timely isolate and investigate potentially compromised taxpayer information. 

These standards also address certain business and customer service objectives such as instant access to Web site owner/operator’s contact information, and Online Provider’s written commitment to maintaining physical, electronic, and procedural safeguards of taxpayer information that comply with applicable law and federal standards. 

Compliance with these standards was mandatory effective January 1, 2010. However, there was a one-year enforcement grace period that expired December 31, 2010. 

1. Extended Validation SSL Certificate
   Online Providers of individual income tax returns shall possess a valid and current Extended Validation Secure Socket Layer (SSL) certificate using SSL 3.0 / TLS 1.0 or later and minimum 1024-bit RSA / 128-bit AES.
2. External Vulnerability Scan
   Online Providers of individual income tax returns shall contract with an independent third-party vendor to run weekly external network vulnerability scans of all their “system components” in accordance with the applicable requirements of the Payment Card Industry Data Security Standards (PCIDSS).
   All scans shall be performed by a scanning vendor certified by the Payment Card Industry Security Standards Council and listed on their current list of Approved Scanning Vendors (ASV). In addition, Online Providers of individual income tax returns whose systems are hosted shall ensure that their host complies with all applicable requirements of the PCIDSS. For the purposes of this standard, “system components” is defined as any network component, server, or application that is included in or connected to the taxpayer data environment. The taxpayer data environment is that part of the network that possesses taxpayer data or sensitive authentication data. If scan reports reveal vulnerabilities, action shall be taken to address the vulnerabilities in line with the scan report’s recommendations. Retain weekly scan reports for at least one year. The ASV and the host (if present) shall be located in the United States.
3. Information Privacy and Safeguard Policies
   This standard applies to Authorized IRS e-file Providers participating in Online Filing of individual income tax returns that own or operate a Web site through which taxpayer information is collected, transmitted, processed or stored. These Providers shall have a written information privacy and safeguard policy consistent with the applicable government and industry guidelines and including the following statement: "we maintain physical, electronic and procedural safeguards that comply with applicable law and federal standards." In addition, Providers’ compliance with these policies shall be certified by a privacy seal vendor acceptable to the IRS.
4. Protection Against Bulk Filing of Fraudulent Income Tax Returns
   This standard applies to Online Providers of individual income tax returns that own or operate a Web site through which taxpayer information is collected, transmitted, processed or stored. These Online Providers shall implement effective technologies to protect their Web site against bulk filing of fraudulent income tax returns. Taxpayer information shall not be collected, transmitted, processed or stored otherwise.
5. Public Domain Name Registration
   This standard applies to Online Providers of individual income tax returns that own or operate a Web site through which taxpayer information is collected, transmitted, processed or stored. These Online Providers shall have their Web site’s domain name registered with a domain name registrar that is located in the United States and accredited by the Internet Corporation for Assigned Names and Numbers (ICANN). The domain name shall be locked and not be private.
6. Reporting of Security Incidents
   Online Providers of individual income tax returns shall report security incidents to the IRS as soon as possible but not later than the next business day after confirmation of the incident. For the purposes of this standard, an event that can result in an unauthorized disclosure, misuse, modification, or destruction of taxpayer information shall be considered a reportable security incident. See instructions for submitting incident reports. In addition, if the Online Provider’s Web site is the proximate cause of the incident, the Online Provider shall cease collecting taxpayer information via their Web site immediately upon detection of the incident and until the underlying causes of the incident are successfully resolved.

Source:  Internal Revenue Service at http://www.irs.gov/uac/Safeguarding-IRS-%3Cem%3Ee-file%3C-em%3E-1