What Happens If You're Not Compliant?
Ignoring IRS cybersecurity rules? Here's what you stand to lose. Every tax preparer must maintain a Written Information Security Plan (WISP) as mandated by federal law. Ignoring these regulations isn't just risky — it's costly.
The Cost of Ignoring Compliance
Per violation for willful non-compliance
Under the Safeguards Rule
Suspension blocks all return filing
Within 6 months of a data breach
Non-Compliance Consequences
The penalties for failing to protect taxpayer data are severe and far-reaching
PTIN Suspension or Denial
Without your PTIN, you can't legally prepare returns, effectively shutting down your operations.
Federal Penalties Up to $250,000
Fines can reach $100,000+ per violation under FTC Safeguards Rule and up to $250,000 under IRS penalties, severely impacting your finances.
Surprise IRS Audits
Increased scrutiny from IRS compliance checks can disrupt your business and reveal further compliance gaps.
Legal Action and Malpractice Lawsuits
Lawsuits from affected clients due to data breaches can cripple your business financially and reputationally.
Permanent Reputation Damage
Clients expect their personal data to be secure — failing to protect it can permanently damage trust and future business.
Loss of Clients and Revenue
Once word spreads that your firm isn't compliant, clients will leave for safer alternatives, causing immediate revenue loss and long-term damage.
Essential Safeguards You Need
To protect taxpayer data, federal law expects your practice to implement and maintain these security measures
Drive Encryption
Secure all data storage to prevent unauthorized access if devices are lost or stolen.
Continuous Monitoring
Real-time monitoring and logging of system access and activities to detect threats early.
Two-Factor Authentication
Protect all sensitive data and access points with multi-layer authentication.
Secure Data Backups
Regular, encrypted backups to safeguard against data loss or ransomware attacks.
Antivirus and Endpoint Detection
Ensure all endpoints have advanced antivirus and threat detection capabilities.
Timely Patch Management
Keep all systems updated with security patches within federally mandated timeframes to close vulnerabilities.
Frequently Asked Questions
The IRS can suspend or revoke your PTIN, which means you cannot legally prepare tax returns. You may also face fines up to $250,000 for willful non-compliance with taxpayer data protection requirements under IRC Section 7216.
No. Every tax preparer who handles taxpayer data — regardless of firm size — must comply with IRS Publication 4557, the FTC Safeguards Rule, and maintain a Written Information Security Plan. There is no small business exemption.
These requirements are already in effect. If you don't have a WISP and proper security measures in place, you're currently non-compliant and at risk. The IRS has stepped up enforcement significantly since 2023, conducting compliance checks during PTIN renewals and audits.
Protect your tax practice from cyber threats
Schedule a free consultation to assess your firm's security posture.