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A CPA’s Nightmare: Lessons Learned from Navigating a Data Breach During Tax Season

In the world of tax professionals, there’s a saying: “It’s not a matter of if, but when.” This adage, once reserved for IRS audits, now applies to a far more menacing threat: data breaches.

Tax firms possess a trove of sensitive client information, including Social Security numbers, bank account details, and past tax returns. This comprehensive data makes tax professionals prime targets for cybercriminals looking to commit identity theft and file fraudulent returns.

In this Federal Tax Updates podcast episode, Roger Harris interviews Catharine Madeley, a CPA from Austin, Texas, who shares her firsthand experience of a data breach at her firm. Catharine’s story underscores the urgent need for tax professionals to prioritize cybersecurity in an evolving threat landscape.

This article explores why tax professionals are prime targets for cybercriminals, the real-world consequences of a data breach, and how practitioners can effectively prevent, detect, and respond to cyber incidents.

The Consequences of a Data Breach

Catharine shared the details of the breach at her firm, which occurred right before the September 15th filing deadline, one of the busiest times for tax professionals. The breach’s timing amplified Catharine’s already immense stress and workload, forcing her to navigate the incident response while still serving clients.

The impact of a data breach extends far beyond the initial incident. A breach can erode client trust, lead to legal liability, and threaten the very existence of a tax practice.

Catharine’s firm had to dedicate significant time and resources to investigate the scope of the breach, communicate with affected clients, and implement protective measures. The personal toll was also substantial, with Catharine barely sleeping for a month as she juggled the incident response with her normal workload.

Shifting the Mindset on Cybersecurity

Many tax professionals treat data security as a mere checkbox exercise rather than a critical, ongoing priority. As Roger notes, “We’re all aware that when we renew our PTIN, we have to check a box saying we’re supposed to have a written plan. But I think sometimes we don’t take it seriously. We write a plan to have a written plan, not to have data security.”

To navigate the evolving threat landscape, practitioners must embrace cybersecurity as an ethical imperative and invest in robust measures, response plans, and continuous education. This involves:

  • Implementing strong technical controls, such as encryption, firewalls, and multi-factor authentication
  • Regularly training staff on cybersecurity best practices and phishing awareness
  • Developing and testing incident response plans to ensure prompt, effective action in the event of a breach
  • Staying informed about emerging threats and trends through continuous learning and collaboration with cybersecurity experts

Responding to a Breach with Transparency and Expertise

After her firm’s breach, Catharine followed her written security plan, immediately contacting insurance, law enforcement, and the IRS. She recounts, “Stepping back, the first call I made was to insurance. I also went down that written information security plan list: call your state attorney general, call law enforcement, call the IRS.”

Catharine’s cyber insurance provided access to expert resources to investigate the breach and guide her response, underscoring the value of proactive preparation. Catharine maintained trust and strengthened relationships amid the incident by transparently communicating with clients and offering guidance on protective measures.

Catharine’s experience also highlights the importance of leveraging the IRS’s identity theft resources for tax professionals. By promptly registering exposed taxpayers with the IRS, firms can prevent fraudulent returns and protect clients and themselves.

Safeguarding Your Practice in the Face of Evolving Threats

Catharine’s story is a powerful reminder that no tax professional is immune to cybersecurity threats. To protect sensitive client data and uphold public trust, practitioners must shift their mindset, prioritizing cybersecurity as an ongoing, top-level concern.

As the cybersecurity landscape continues to evolve, tax professionals have a choice: view data security as a burdensome requirement or embrace it as an opportunity to strengthen client relationships and differentiate their services. By choosing the latter, practitioners can protect taxpayers and uphold the profession’s integrity.

Listen to the complete Federal Tax Update podcast episode to learn more about Catharine’s experience and gain valuable insights for safeguarding your practice.

How Padgett helped Holly Crumley become a top-dog entrepreneur

Holly Crumley had always loved animals, and eventually, she channeled that love into starting a business focused on animals. After running a dairy farm for years, Holly began Cavaliers by Crumley which breeds, trains and sells Cavalier King Charles Spaniel puppies. “I traveled all over the world,” Holly says. “About 20 years ago, I finally found the right place to purchase the dogs and begin the breeding business.” Her business later expanded with the opening of a pet resort in 2007, and she then added a guardianship program to her breeding business.

With such a unique business model, it was crucial for Holly to have an accountant who truly understood her business. That’s where Janet Kaup of Padgett Gainesville came in. “Janet found us about 30 years ago,” Holly says. “She was building her Padgett business and came to the farm one day and asked if she could be of assistance to us. We didn’t have a good accountant then, so it took off from there.”

Since then, Janet has been by Holly’s side as she has built her business. “Janet has become like a sister to me,” Holly continues. “I’ve always depended on her to lead me in the right direction. It’s just imperative to have an accountant who understands the type of business you’re involved in.”

“It’s also important to hire good people,” Holly continues. “We offer incentives for our employees, helping them put their kids through college, helping people learn how the business works and other things. My employee retention is great; Janet has helped me manage my employees and offer a simple retirement plan. We have a tax card to help people with medical expenses and things like that. I have very committed, loyal employees.”

Having a strong support system is key to Holly’s hectic day. “It’s a constant business; it doesn’t end,” she says. “It’s seven days a week. It’s a 24-hour job, and not a clean job either… I get up and let the dogs out, feed and clean up for them. Then we have social media to deal with, returning phone calls and emails. The business I’m in, communication doesn’t stop with the sale of the dog.”

Despite her busy schedule, Holly also prioritizes education, both for herself and her employees. “School’s never out for the pros,” she says. “It’s important to stay on the cutting edge, always be on top of new developments.” She encourages them to attend leadership events, learn the business, and stay informed on industry updates. Luckily, staying up to date on every in and out of the tax system isn’t something that Holly has to add to her plate. She relies on Janet and her Padgett team for that.

“I did everything the wrong way first,” Holly adds, “so I’ve learned how to do a lot of things right. I learned all my lessons the hard way. I’ve been lucky to have a great accountant. Janet took it upon herself to make it important that we were taken care of. I feel confident about my taxes.”

If you need an accountant or tax professional on your business’s team, Padgett can help! Contact us today.

Teamwork made Jenna Speight’s dream work

Jenna Speight has always been fashion-forward, but she struggled to find a way to turn her passion into a profit. After changing her college major several times in search of the right path forward, her hairstylist suggested cosmetology school. “It was a lightbulb moment for me,” Jenna says. “I called a school the next day, and within four weeks, I was enrolled.”

Though she was now on the right path, it wasn’t always easy. But the difficulties opened other doors for Jenna: “I worked at a few salons, and there ended up being a lot of drama that made me consider leaving the industry. It was either leave or start my own salon. So, I decided to open my own salon.”

Jenna opened Rue 62 Salon in April 2011, but the challenges wouldn’t stop there. Less than a year later, she discovered she was expecting twins. “It was a bit overwhelming as I was trying to build my new business,” she says. “One baby I could manage, but when I found out it was two, I really had to adjust my expectations.”

Thankfully, she was surrounded by a strong team of supportive employees who helped the business grow. “Choosing who I can work with has been essential,” Jenna adds. “[My twins] are absolutely a blessing, and my team has been key in our success.”

Years later, when COVID-19 forced her business to shut down for several months and implement expensive safety protocols upon reopening, Padgett Barrington joined Jenna’s team. She had received a PPP loan, and her previous accountant was not equipped to handle the challenging tax situations that came with it. “I needed someone more informed,” she says, so she reached out to Dave Gribben. “He had amazing reviews and his office was only half a mile from my house.”

“He’s always been super responsive, very thorough, and great at explaining things,” she continues. “He made my tax process more understandable, and introduced me to more options for government assistance, like the ERC, which was absolutely essential to help us get out of a tight spot.”

Jenna credits her strong support system with helping the salon succeed despite the challenges life continued to throw her way—including being diagnosed with breast cancer in December 2021. “That changed everything,” she says. “I didn’t work in the salon for 7 months, and I would go weeks without talking to anyone. The cancer journey has really re-prioritized my life and really drives home the point that the girls on my staff can weather any storm.”

“They’re like family,” she adds. “One of my stylists had twins as soon as I came back, and another had her first child when the first returned. Through it all, we’re stronger than ever. I think that’s due in large part to who I’ve hired. I have the most incredible group of women.”

Jenna knew opening a small salon wouldn’t make her a millionaire, but believes the experience of working with a team of incredible people has been priceless.

“My best advice, the best thing I have done as an owner, is hire the right people,” she says. “I have a staff that will really step up and have my back, who will keep the salon surviving and thriving. Having a tax preparer who is professional and responsive and has my best financial goals in mind, somebody who treats me with respect… has been extremely helpful, not just to my business, but to my self-esteem.”

“I absolutely, even 12 years in, still look at the tax return and don’t understand it,” Jenna continues. “It’s not something I could do on my own. Having a great bookkeeper who keeps track of things for me has been a huge burden lifted off of my shoulders. If another small business owner is anything like me and doesn’t have an MBA or a business degree, having a good accountant is essential.”


If you need an accountant or tax professional on your business’s team, Padgett can help! Contact us today.

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