IRS Sued in Data Breach Class Action Lawsuit

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A data breach class action lawsuit has been filed against the Internal Revenue Service (IRS), alleging the government agency failed to prevent a large data breach that compromised the personal information of about 330,000 U.S. taxpayers. However, experts state that the plaintiffs of this IRS class action might have a hard time convincing a D.C. federal court that they suffered actual damages because of the data breach.

According to plaintiffs Becky Welborn and Wendy Windrich, the IRS allegedly knew for years that taxpayers private tax records were not adequately protected, alleged violation of the Privacy Act of 1974. Both the plaintiffs claim they suffered tangible damages and monetary losses due to the IRS data breach.

The IRS data breach lawsuit states that the hackers’ infiltration of the government’s tax records only affected taxpayers that signed up for the agency’s online service “Get Transcript,” a system that allows taxpayers to order copies of tax returns and other government filings online. The IRS’ system is protected by “knowledge-based authentication,” where individuals must correctly answer numerous multiple choice questions in order to access their accounts and files.

However, once the data thieves were able to get around the authentication process, they were able to access sensitive, personal information of hundreds of thousands of taxpayers, including Social Security numbers, past and current W-2, as well as income and holdings information. Armed with this information, the hackers could file fake tax returns, the IRS class action lawsuit claims.

In the immediate wake of the data breach, the IRS informed the public that 110,000 taxpayers were affected by the hackers’ actions, but a more thorough investigation by the agency revealed that the real number of individuals affected was closer to three times the amount initially projected.

Over the past few months, several companies and entities have come under fire for data breach incidences that compromised millions of consumers’ personal information. However, many of these data breach lawsuits have been tossed from federal courts after judges found the plaintiffs lacked standing. And even though this particular data breach class action lawsuit is being brought against the IRS, it will still face the same problem of establishing whether or not the plaintiffs have standing to bring forth allegations of damages against the government agency.

Welborn and Windrich’s case against the IRS does have some support though, as reports released by officials within the U.S. Department of the Treasury and the U.S. Government Accountability Office demonstrate that the IRS was warned to increase their data security because of apparent vulnerabilities in their systems.

If this IRS data breach class action lawsuit overcomes the difficulty of establishing standing, then the agency will likely end in a settlement for the plaintiffs and the Class of taxpayers.

The plaintiffs and the proposed Class are represented by Steven W. Teppler of Abbott Law Group, P.A., Richard D. McCune of McCune Wright LLP, John A. Yanchunis of Morgan & Morgan, and Joel R. Rhine of Rhine Law Firm, P.C.

The IRS Data Breach Class Action Lawsuit is Welborn, et al. v. Internal Revenue Service, et al., Case No. 1:15-cv-01352, in the U.S. District Court for the District of Columbia.