How SOC 2 and HIPAA Protect FET Filers from Tax Scams

Tax scammers often try to entice taxpayers into making tax claims by promising taxpayers lower tax bills or tax credits.

The fraudsters can pass off as people having expertise in the field of taxes or finance. They engage in deceitful activities such as making use of advertisements on social media, sending emails that are not authentic and creating fake documents for convincing people to receive credits without having to check if they are eligible for them. The taxpayers who give in to these fraudulent activities risk being punished by the IRS.

The IRS often cautions taxpayers on such tactics and urges them to confirm eligibility for tax credits via authentic channels.

1. Fake Tax Credits
Fraudsters sell fictional tax credits such as “Tribal Tax Credits” and “Native American Tax Credits,” encouraging people to buy them to save on taxes or get refunds.

The IRS has warned people against falling for fake Tribal Tax Credit scams since there is no such thing as a Tribal Tax Credit.

Another scam is a general "self-employment tax credit." Though some valid credits may apply to those self-employed who qualify, there is no overall credit for merely being self-employed.

2. Misuse of the Fuel Tax Credit
The Fuel Tax Credit is a legitimate tax benefit, but scammers may encourage taxpayers to claim it without qualifying.

According to the IRS, the Fuel Tax Credit generally applies to certain nontaxable uses of fuel, including qualifying off-highway business activities and farming. Most taxpayers are not eligible, and filing Form 720 does not automatically qualify a business for this credit.

Claiming an ineligible fuel tax credit can lead to additional taxes, penalties, and interest.

It is important for taxpayers to learn how to recognize bogus tax schemes at the earliest possible moment. The IRS shares information on how to find tax scams and fraud. Common warning signs include,

Untruthful claims about refunds: Inflated refund claims or offers for enormous cost savings regarding taxes.

Legal credit offers at low rates: Someone wants to provide tax credits for a price much lower than its real value.

Urgent communication: Claims that only a limited time is left to get certain tax benefits.

Fake government contracts: Unverifiable tax provisions or government contracts that are kept in secrecy.

Suspicious legal documents: Professional opinions or certifications that are untraceable back to the professionals who issued them.

Requests for sensitive data: Incoming inquiries requesting information such as tax IDs, bank information, passwords, or tax records.

False advertising on social media: Ads that entice individuals to seek tax credits without a determination of eligibility.

Nondisclosure agreements: Requiring confidentiality before sending basic information regarding a potential tax credit.

Read the IRS page related to Recognizing tax scams and fraud to know more details.

In case of any frauds related to tax credit schemes or any tax scams, report them to the IRS. Taxpayers can report tax fraud and scams to the IRS using its official reporting system.

In case of any scam:

• Do not respond to the suspected fraudster.

• Make sure you retain any emails, text messages, and other forms of communication that appear suspicious.

• Change your passwords for any accounts that may have been compromised and consult your filing provider in case assistance is needed.

• Seek advice from a certified tax adviser if you may have submitted an incorrect tax return.

Criminals who commit tax fraud do not always trick others using promotional brochures or tax incentives to gain personal information from tax payers. There are some criminals who resort to phishing, hacking, counterfeit websites, and other flaws that are present in electronic tax filings.

When a company submits a federal excise tax return, it shares sensitive data about itself, such as its EIN number, contact information, financial data, and tax liability. In this way, perpetrators can impersonate a legitimate tax professional, send fraudulent messages that appear convincing, or commit financial fraud.

Weak security controls on a filing portal can increase the risk that sensitive tax information will be accessed without authorization. While scammers can get information from many sources, securing the information submitted through an online filing portal closes one potential avenue of exploitation.

Therefore, before submitting their returns, businesses should carefully review the data protection practices of a tax filing provider. That’s where HIPAA and SOC 2 security standards come in.

SOC 2: Security Controls for Protecting Sensitive Data
SOC 2 (System and Organization Controls 2) refers to a framework used for security assessment created by the American Institute of Certified Public Accountants (AICPA). It assesses the control systems of the organizations based on the Trust Services Criteria namely security, availability, processing integrity, confidentiality, and privacy.

SOC 2 assessments check tax filing services online and provide independent assurance on various aspects of security control such as access management, monitoring systems, and confidential data handling.

HIPAA: Protecting Sensitive Healthcare Information
The Health Insurance Portability and Accountability Act is a Federal law protecting the privacy and security of certain protected health information.

Its Security Rule requires covered entities and business associates to have appropriate administrative, physical and technical safeguards in place to protect electronic protected health information.

HIPAA-aligned security practices can be particularly relevant if you’re a business that files the Patient-Centered Outcomes Research Institute (PCORI) fee and Form 720, and sensitive healthcare information is involved.

HIPAA does not apply specifically to financial records, but does apply to health information; thus, the practices that mandate the management of such sensitive information are worth studying.

SOC 2 and HIPAA safeguards ensure secure data management and help to mitigate vulnerabilities that cybercriminals can exploit.

Here's how these security practices help FET filers:

1. Protecting Sensitive Tax Information

The security practices used to protect taxpayer information and business financial records include different forms of encryption, proper storage, and appropriate handling of sensitive data.

2. Unauthorized Account Access Prevention

Authentication and access management methods help limit authorized individuals' ability to view sensitive document information.

3. Protecting Data Privacy

Confidentiality procedures ensure that sensitive information is handled properly at every step of the filing process, thereby decreasing the likelihood of unnecessary disclosure.

4. Security Threat Detection and Response

Security monitoring, vulnerability management, and incident-response procedures enable filing providers to spot suspicious activity and react to potential security incidents.

5. Providing Accountability through Security Assessments

Conducting independent SOC 2 assessment and complying with HIPAA regulations help organizations assess their practices, detect weak points in their security systems, and implement appropriate measures for protection.

Using both methods makes it possible for scammers to find fewer opportunities for exploiting the loopholes in the online submission platform and getting sensitive information.

Security standards do not guarantee complete protection from all tax scams. They help to reduce the risks around data. Taxpayers need to be alert to fraudulent communications and misleading tax claims.

When filing your Federal Excise Tax (FET), choosing a secure and trusted e-filing platform is essential. Simple720 offers advanced security measures to protect your sensitive tax information from unauthorized access and potential scams.

• SOC 2 Certified Security: Simple720 follows SOC 2 security standards, ensuring strong data protection, access controls, and secure handling of confidential business information.

• HIPAA-Certified Protection: Simple720 maintains HIPAA-aligned security practices to safeguard sensitive healthcare-related information, particularly for businesses filing PCORI fees.

• IRS-Authorized E-Filing Provider: As an IRS-authorized e-filing provider, Simple720 offers a trusted platform for electronically submitting Federal Excise Tax returns.

• Advanced Data Encryption: Your sensitive information, including EINs, financial records, and tax details, is protected through encryption and secure data storage practices.

• Reduced Risk of Tax Scams: With robust security controls and secure data management, Simple720 helps minimize the risk of unauthorized data access, identity theft, and exposure to tax scammers.

Tax scams are becoming increasingly sophisticated, making it essential for form 720 filers to stay informed and protect their sensitive information. Recognizing fraudulent tax credits, suspicious communications, and misleading refund claims can help businesses avoid financial losses and IRS penalties. 

Choosing a secure filing platform that follows SOC 2 and HIPAA security standards adds another layer of protection. With Simple720, you can file your Federal Excise Tax returns securely and confidently while reducing the risk of unauthorized data exposure and tax-related fraud. 

Ready to File Your 720 Form Safely? Complete your Form 720 filings Online with Simple720 today!