Wealthy Taxpayers Alerted to Leaked Data Years After IRS Breach

Some taxpayers are learning that their data was leaked in the widespread breach by a former IRS contractor that led to the release of former President Donald Trump’s tax returns.

Four tax lawyers said they have seen letters from the IRS that went to clients this week and last week notifying them that their tax return information was compromised by Charles Littlejohn, who was sentenced in January to five years in prison for the breach. Bloomberg Tax received a copy of the letter, dated April 12.

It’s unclear who exactly, beyond Trump and other billionaires referenced in news articles that first reported the leaked returns, was affected by the breach until now. Littlejohn admitted to taking tax information from thousands of wealthy Americans between 2018 and 2020. The breach was the largest at the IRS in recent history. The notification letters could precede a flood of lawsuits against the government from wealthy taxpayers who didn’t initially realize their information was part of the leak.

The IRS is required to notify taxpayers if they were affected by a data breach under Section 7431 of the Internal Revenue Code, which is attached to the letter. Taxpayers can sue the person who leaked it or the US for damages if the person was an employee of the federal government.

“Consistent with its obligation under the Internal Revenue Code, the IRS has been notifying taxpayers that an IRS contractor was charged with the unauthorized disclosure of their returns or return information,” an IRS spokesperson said in a statement.

The IRS didn’t give more details, including how many letters were sent out and why the letters were going out now.

Details Are Scarce

The letters, classified as Letter 6613-A, all appear to be the same, tax practitioners said. The letters say the Department of Justice “is prosecuting this matter” and provides a link to a website detailing Littlejohn’s case. The letters offer no personalized information about which data was taken and to whom it was sent.

“The problem for taxpayers who are receiving this is that the details to help them understand the potential effects to them individually are just not there in the letter,” said Melissa Wiley, a tax controversy lawyer at Lowenstein Sandler LLP, whose clients have received a letter.

Littlejohn leaked Trump’s tax data to the New York Times and other tax returns from wealthy people to ProPublica, both of which did multiple stories based on the information. He pleaded guilty to unauthorized disclosure of tax returns and return information in October 2023.

“From the Littlejohn trial, we know what he was out to get was America’s wealthy taxpayers,” Wiley said. “These typically weren’t your average taxpayers. They were high-income individuals and presumably some of the investment vehicles that they participate in. That fits the profile of clients we’re seeing who are receiving these.”

Brett Bissonnette, a tax controversy lawyer at Plante Moran PLLC, said he’s seen “several” letters which were sent to “high net worth entities.”

“There are a lot of questions about what to do,” Bissonnette said.

Incoming Lawsuits

The wave of letters to taxpayers may be a precursor to a wave of litigation, said Andy Weiner, a tax controversy lawyer at Kostelanetz LLP who has gotten requests from accounting firms to take on clients who have received these letters.

The statute allows taxpayers to sue for $1,000 “for each act of unauthorized inspect or disclosure of return or return information” and litigation costs.

“Depending on the number of violations, this could be a pretty significant matter,” Weiner said.

Billionaire hedge fund manager Ken Griffin’s 2022 lawsuit against the IRS and Treasury Department may give insight into how the DOJ and courts will treat subsequent cases.

The government filed a motion to dismiss his claim that they were responsible. US District Judge Robert N. Scola Jr. in Miami ruled April 22 that Griffin can still sue the IRS over the release of his information, but dismissed his claim that the government violated federal privacy laws by failing to properly safeguard his data.

Griffin, the founder of Citadel, was the subject of a 2022 ProPublica article stating that he spent $54 million to fight an Illinois tax increase for the rich. Griffin has a net worth of $37 billion as of April 23, according to the Bloomberg Billionaires Index.

Littlejohn also stole data on the top 500 taxpayers by income for the previous 15 years, leaking it to ProPublica. Michael Bloomberg was among those included in the reporting. Bloomberg Law is operated by entities controlled by Bloomberg.

Taxpayers affected by the breach can apply for an identity protection pin to prevent further tax-related identity theft, Bissonnette said. But it’s difficult to know what to do without first knowing what information of which person was leaked, Wiley said.

“It’s hard for us to advise clients about what they may potentially do here other than ask questions of the IRS and potentially DOJ,” Wiley said.

—With assistance from Erin Slowey.