Week in Insights: IRS Direct File’s Security Should Be a Priority

Curated by Daniel Xu

The IRS Direct File pilot program launched this year into a world fraught with threats. While the IRS is no newcomer to information security, taxpayers will be newcomers to Direct File—and that creates myriad potential openings for bad actors to exploit.

When there inevitably is some sort of breach involving Direct File, detractors likely will attempt to co-opt privacy and security concerns to destroy the public tax filing option before it gets a footing.

Tax professionals and consumers alike must do two things to prepare: First, they must understand that there is no such thing as perfect security. The IRS experienced data breaches before Direct File launched, and that won’t change after it launches.

Second, security is a two-way street, so taxpayers should be properly educated on how to interface with Direct File just like any other service. The IRS should instruct them on what an authentic communication from the agency on Direct File looks like, what scam emails or phone calls are circulating, and what information the IRS will request via the Direct File interface.

All these steps must be undertaken now, during the pilot program or beta testing period, as they are as integral to Direct File’s success as securing the servers or making sure they scale properly to remain accessible during peak filing times.

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A sign for the IRS Direct File program held in front of the IRS building in Washington, D.C., on April 5, 2024.

Photographer: Tasos Katopodis/Getty Images for Economic Security Project

State Insights

RJS Law’s Lauren Suarez and Vanst Law’s Allison Soares say that a California bill designed to increase tax-sharing agreement transparency would help uninvolved businesses and cities.

BakerHostetler’s Mike Semes analyzes the Solix corporate business tax refund decision, saying the case raises questions on how other courts may interpret it.

Jones Walker’s Katie Quinn and Chris Lutz say taxpayers can respond to state transfer pricing audits by establishing compliance with federal regulations and advocating for legislative change.

Federal Insights

Attorney Keith Butcher reviews business owner sale strategies, noting that employee stock ownership plans are a good option.

Stout’s Oliver Warnke analyzes an estate tax bill case before the US Supreme Court, saying an eventual ruling will fail to resolve questions of valuation timing, age, and health considerations.

Dentons’ John Harrington questions the rise of temporary tax provisions. saying the complexity of tax laws is growing while congressional action on legislation slows.

Moss Adams’ Clay Hodges and Daniel Quintana reviews sports partnerships’ tax deduction options, saying partners should be proactive about documentation and record retention.

Global Insights

EY’s Richard Albert and George Riddell discuss the impact of the EU’s new carbon tax, which may create significant challenges for developing economies.

Columnist Corner

Use of remote cashiers in locales such as New York presents auditing challenges for state tax departments, as it could facilitate and obscure sales tax suppression, Andrew Leahey writes in his Technically Speaking column.

Introducing lotteries based on receipt scanning “would deputize customers to help tax authorities create a near-complete record of the transactions conducted by a given business,” Andrew argues, noting some countries increased sales tax revenue after implementing similar systems.

Career Moves

Marco Amitrano has been appointed alliance senior partner for PwC UK and Middle East, effective July 1.

David Goldman and Matthew Schonholz have joined Baker McKenzie as partners with the transactional tax practice in Los Angeles.

Karin Ecroyd and Scott Smith have joined FORVIS as managing directors in its state and local tax practice in New York and Nashville, respectively.

If you’re changing jobs or being promoted, email your submission to TaxMoves@bloombergindustry.com for consideration.

News Roundup

It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team (login required).

• The next step in the IRS’s crackdown on wealthy tax cheats is going after inflated art valuations that produce outsized deductions.
• PwC LLP’s decision to end its experiment as a two-segment firm reflects pressure on the firm to address competitive labor trends and market conditions squeezing the accounting industry.
• The cannabis industry is bracing for future federal taxation while at the same time warning that some proposals in Congress could make the illicit market even stronger.
• Some taxpayers are learning that their data was leaked in the widespread breach by a former IRS contractor that led to the release of former President Donald Trump’s tax returns.

The gallery space at Art Miami, on Dec. 5, 2023.

Photographer: Arturo Holmes/Getty Images for Art Miami

Tax Journals

(Bloomberg Tax login required)

Tax Management International Journal

ASEAN-based companies will need to identify and assess the financial impact of the EU’s carbon border adjustment mechanism and then position themselves to take advantage of the incentives to support the transition to a low-carbon future, EY’s Shuhui Toh, Shubendhu Misra, and Michiel Friedhoff say.

Tax Management Memorandum

Life insurance seekers often need to overcome an aversion to considering their own infirmary and death as well as other internal issues that often lead to bad decision making, long-time certified financial planner Henry Montag says.

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