IRS seeks dismissal of data breach case

By Anna Aguillard | Dec 10, 2015

PROVIDENCE, R.I. (Legal Newsline) - After hackers stole the data of 330,000 taxpayers from an IRS database earlier this year, the federal agency now is requesting that the circuit court hearing the class action suit dismiss the case in its entirety.

The IRS alleges the court does not have jurisdiction over the claims for three reasons: the claims are preempted by the IRS Code; the IRS is immune from liability under the doctrine of sovereign immunity; and the taxpayers have not proven any actual injury by the data breach.

Linn Freedman, chair of Robinson & Cole LLP’s Data Privacy and Security Team, said the argument proposed by the IRS is nothing new.

“The IRS’s position that the proposed class members do not have standing to pursue the claim is consistent with data breach litigation throughout the country,” Freedman told Legal Newsline.

Freedman said the IRS usually successfully gets data breach cases dismissed when the class action members cannot show that hackers accessed their personal information, misused it or that they were actually harmed as a result of the breach.

However, she points out that the plaintiffs in the class action allegedly actually were damaged by the agency's negligence.

The plaintiffs claim the breach occurred when hackers were able to use the IRS’s “Get Transcript” service to obtain copies of filed tax returns, which included sensitive personal information.

“The difference in this case is that the taxpayers actually were the victims of identity theft, because hackers were able to access the IRS website, were able to access and then use taxpayers’ personal information, including Social Security numbers to file false tax returns in the taxpayers’ name, and receive a tax refund in the taxpayers’ names,” Freedman said.

Because hackers were able to file false tax returns assuming fake identities of real taxpayers, when the real taxpayers attempted to file their valid tax returns, they could not.

“In some cases, [the IRS] paid a refund to the wrong individual,” Freedman said. “This happened with at least 330,000 taxpayers.”

Despite the mess brought on by the alleged hack, the IRS has yet to provide relief to taxpayers. In order to claim identity theft, each taxpayer had to submit an Affidavit of Identity with the agency. Additionally, each citizen whose information was hacked had to file his or her tax returns via paper.

“The IRS supposedly has a red flag on these individuals’ files to ensure that it doesn’t happen again in future years,” Freedman said.

The IRS has said the “Get Transcript” service has been suspended to protect taxpayers from future fraud.

“It is unclear whether these facts… will be persuasive to the judge,” Freedman said.

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