IRS breach larger than initially reported, 220,000 taxpayers affected

IRS says breach occurred earlier than previously stated, confirmed that criminals used PII to clear security checks

The Internal Revenue Service (IRS) said on Monday that the data breach reported in May is larger than previously reported, impacting an additional 220,000 taxpayers, bringing the total to 330,000.

In addition, the agency will send 170,000 taxpayers notifications that their personal information was potentially exposed during the incident.

The compromise occurred through the "Get Transcript" application used by the tax agency. Using previously acquired personal information (PII), criminals were able to access the "Get Transcript" application to obtain old tax returns.

"One of the reasons authentication-based attacks are so effective – and so popular among hackers – is that they’re very difficult to identify. Once legitimate credentials are obtained, it’s nearly impossible to distinguish between the good guys and the bad guys, especially if the attackers are patient and disciplined," said Jeff Hill, channel manager at STEALTHbits Technologies in a statement.

"Here we have a case where a successful authentication-based attack was discovered in May, and yet the IRS is still unclear of the extent of the breach’s damage months later. Even now, how confident is the IRS they fully understand the extent of the attack completely, or should we expect yet another shoe to drop in the coming weeks?"

The IRS says that the attackers had "prior personal knowledge about the taxpayer," as a means to defend the "Get Transcript" application, pointing out that someone would need to know a person's Social Security information, date of birth, tax filing status and street address before accessing IRS system.

Yet, all of this information is available through public records. More importantly, data such as this has been compromised in bulk over the last year, via a number of high profile data breaches. Once again, the IRS incident is a perfect example of why it's a bad idea to rely on commonly available personal information as a security check.

The IRS says they will begin mailing notification letters to affected taxpayers this week, but the concern – as it was in May – is that this incident can be used as leverage in a number of fraudulent schemes.

Thus, it's important to note that any contact form the IRS about this matter will only come via the US Postal Service (USPS). The IRS does not use email or telephone to contact taxpayers, especially where security is concerned.

Another observation from May is that the incident could be related to a number of budget cuts made that impacted security spending.

"IRS spending on cybersecurity is down by 20% since 2011, from $187 million four years ago to $149 million in the current fiscal year. (That's actually less bad than it sounds. Funding plummeted to $129 million in 2012 before rebounding a bit in recent years.) The agency also lost key IT personnel when it was stripped of its ability to pay cybersecurity experts at higher-than-normal levels." – CSO Staff

"The impact of this breach will move well into 2016 and beyond, with the President attempting to counter these concerns with a 72 percent increase in cyber security funding for the IRS," said Stewart Draper, director of insider threat programs at Securonix.

"Much of the damage has already been done. Critical personal data (such as social security numbers, which cannot be changed like your debit card) are already in the hands of potential attackers. Investing this money in the right areas of security will be critical for the success of the IRS."

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