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Ransomware attack payments might be tax deductible, says US government
- adammunich 5y agothis seems like a bad idea
- jaclaz 5y agoWell, they are anyway expenditures. Somehow they need to be taken into account, if you pay US $ 100,000 to a consultant to harden your infrastructure or if you pay US $ 100,000 as a ransom, you have in both cases US $ 100,000 less, the difference is that in the first case you have an invoice, whilst in the second the IRS has to trust you. Point might be how to "certify" whether the ransomware attack is "real" or if it could be simulated to only get away with hiding/divert the money (and pay no taxes on those).
- ithkuil 5y agoThe Key difference is that when I pay consultants they in turn pay the taxes (or in turn they have some expenses to towards somebody else who eventually pays the taxes), so overall they are not lost. Paying a ransom by definition puts the whole sum in a black hole, tax-wise.
- jaclaz 5y ago>The Key difference is that when I pay consultants they in turn pay the taxes (or in turn they have some expenses to towards somebody else who eventually pays the taxes), so overall they are not lost. Not really-really. The consultants pay taxes on the money they get from you only because (if) they respect the Law, it is none of your business (it is the IRS's one) if the consultants later comply. If you prefer, whether the consultants pay taxes or not doesn't change anything in your company's accounts, you have an expense and proper documentation for it, what happens after and outside the transaction is irrelevant. The issue (from your or your company's point of view) is how to properly document the expense (and it is IMHO a tough one to document a ransom).
- ithkuil 5y agoYou may not care whether the consultant pays the taxes. The lawmakers that define the tax laws (implemented by agencies like the IRS in the specific case of the USA) do take into consideration where the money goes. If the IRS currently doesn't care or doesn't check, that's a specific implementation issue of your country. Laws can be changed
- jaclaz 5y agoLet's try imagining another scenario. You have ransomware insurance. You fall victim to a ransomware attack. You pay US $ 100,000 as ransom. The insurance company reimburses you the US $ 100,000. It is clear that financially that is 0. But from a tax view point, if you cannot count the US $ 100,000 of the ransom as expenses you will be paying some form of taxation on the US $ 100,000 you received from the insurance.
- ithkuil 5y agoThis can be solved easily: let the insurance company pay the ransom, and factor in the full cost (since it wouldn't be tax-deductable) when computing the premium. EDIT: otherwise, the collectivity effectively pays for what you deducted from your taxes. The missing money on the overall country balance has to come from somewhere. EDIT2: If you're talking about private insurances covering your risk of ransoms, this means you assume it's your responsibility to pay for your losses (insurances just allow you to pay proportionally to the risk), and not e.g. have the government, say, paying it for you (through public funds, which can and IIRC has happened for kidnapping cases here some countries pay the cost of rescue). All I'm saying is that if it's private insurance, it should be private 100%
- solatic 5y ago> Point might be how to "certify" whether the ransomware attack is "real" or if it could be simulated to only get away with hiding/divert the money (and pay no taxes on those). Well, exactly this. Clarifying that ransom payments are tax-deductible creates a moral hazard whereby companies set up off-shore entities to conduct ransomware attacks. The parent company gets attacked, establishes a paper trail of "damages" (whether these damages are material is irrelevant, particularly as the stock market has shown that it won't punish companies for being the victim of cyberattacks), quickly pays the ransom, which moves the money off-shore into crypto accounts which can then be tumblered and funneled into shell companies. The off-shore cash can then be used off-the-books for a variety of purposes that indirectly benefit the parent company. Good luck to the forensic auditors who try to follow the trail to show that the money never really left the parent company's control.
- rightbyte 5y agoWhy would you want to make clean money dirty as a company? Sure, to steal it for personal gain. But to benefit the company? For paying bribes maybe?
- solatic 5y agoThe choice is between paying $X (say, $10 million) to the government in taxes, where it is never seen again and only indirectly benefits the company (the roads and railroads argument), or "paying" that same money into dirty accounts that, yes, are limited in what they can achieve (i.e. you can't pay dividends from it or engage in capital construction in the name of the company) but can still achieve direct benefits for the company (e.g. paying for negative coverage of competitors' products, lining the pockets of influential people)
- tobyhinloopen 5y ago“It’s just a business expense”
- okamiueru 5y agoDoes anyone know how easy this would be to abuse by staging a ransomware attack?
- deleted 5y ago[deleted]
- tiku 5y agoRansomware as a (tax)service
- 11235813213455 5y agoAs much as fake donations I guess
- ElViajero 5y ago> As much as fake donations I guess So, a lot.
- amelius 5y agoHow comfortable are you about filing a police report against yourself?
- idiotsecant 5y agoIf you're trying to illegal embezzle or evade taxes I think this is just one more thing to add to the list, wouldn't be a big problem.
- 5y ago
- occamrazor 5y agoAre extortion payment and “protection fees” to mob groups already tax deductible? Ransomware payments aren’t qualitatively different.
- casefields 5y agoMaybe: https://taxfoundation.org/irs-guidance-thieves-drug-dealers-and-corrupt-officials https://taxfoundation.org/irs-guidance-thieves-drug-dealers-...
- toomanybeersies 5y agoYep, losses due to theft are deductible [1], including blackmail, extortion and "kidnapping for ransom". [1] https://www.irs.gov/publications/p547#en_US_2020_publink1000225208 https://www.irs.gov/publications/p547#en_US_2020_publink1000...
- bigodbiel 5y agobut is it securities fraud if an org knows about the vulnerability and doesn't disclose?
- tomalpha 5y agoIt is my (lay) understanding that in the US in particular almost anything is securities fraud: https://www.bloomberg.com/opinion/articles/2019-06-26/everything-everywhere-is-securities-fraud https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...
- endymi0n 5y agoIt‘s always funny and surprising to non-insiders, but tax law and criminal law don‘t have that many touchpoints. If you pay extortion money or bribes as a company, it‘s not just that they‘re deductible, you‘re actually obligated to account for them. Being illegal and being deductible don‘t have to do anything with each other. Don‘t forget Al Capone was actually convicted for tax evasion in the end, as even illegal businesses have to pay taxes.
- thepangolino 5y agoWait wait wait. So if I want to pay bribes, I can just say that I have been extorted that money and all will be legit?
- gambiting 5y agoDo you have a police report to go with it? If yes, then sure.
- beckman466 5y agoShhhh you’re stealing business from my new tax consultancy startup
- deleted 5y ago[deleted]
- unixhero 5y agoWow that was fast.
- throw737858 5y agoYeah, right. And criminals will give you an invoice with their tax ID.
- melomal 5y agoI remember seeing that there is an actual section dedicated to income from illicit income in the tax forms. Which is honestly amazing to see, and confusing too.
- deepsun 5y agoI see how it can be used to evade taxes.
- gigatexal 5y agoUgh. Legitimizing them will only exacerbate the attacks!
- csydas 5y agoCan you explain this a bit more? I'm not sure how it contributes to the motivation for the attackers, as the motivation is already pretty high due to the ease of execution. From my point of view, whether or not there is a legitimate process built around the ransomware attacks, the attackers will simply continue business as usual; there's no fear or penalty for them, the workflow of their process is not disrupted in the slightest (the bitcoin payments can still go through), and I don't really get the impression that the legal background of the victim's country is taken into consideration by the attackers. (All of the above is why I'm pretty sure that the idea of "make paying the ransom illegal" will have no impact on the number of attacks, as such a policy does nothing to actually impede the workflow of ransomware; all it does is create another decision point for an already damaged group of persons as to whether they commit an illegal act or not to try to save their business)
- gigatexal 5y agoI was thinking this plus the insurance will make it such that most companies will just pay the ransoms instead of working to secure their systems and train employees. No defense is perfect but also these criminals shouldn’t get paid.
- YellowAfterlife 5y agoDoes anyone know what's going on with text in this article? Almost a collection of clipped statements "Deductibility is a piece of a bigger quandary stemming from the rise in ransomware attacks, in which cybercriminals scramble computer data and demand payment for unlocking the files. The government A ransomware attack on Colonial Pipeline last month led to gas shortages in parts of the United States. The company, which transports about 45% of fuel consumed on the East Coast,"
- toomanybeersies 5y agoExpenses and losses related to 'kidnapping for ransom' are tax deductible [1], so it stands to reason that ransomware payments are also tax deductible. [1] https://www.irs.gov/publications/p547#en_US_2020_publink1000225208 https://www.irs.gov/publications/p547#en_US_2020_publink1000...
- deepserket 5y agoStrangely i haven't heard kidnappings with a payment in cryptocurrency. That's order of magnitude easier than requesting paper money
- detaro 5y agoit happens, plenty reports out there, random kidnappings just don't make high-profile news as much.
- BiteCode_dev 5y agoSo I can pretend paying ransom in btc, pocket money from my own company anonymously for a self controled malware, and save on taxes ? Damn this loophole is getting better and better.
- tehwebguy 5y agoOld and busted: Sorry Tolkien estate, the LoTR movies didn’t turn a profit so we have no backend for you (because we spent a billion dollars on marketing though one of our shell companies). New hotness: Sorry IRS, our entire business didn’t turn a profit so we don’t owe taxes (because we sent $5 billion in ransoms to one of our shell companies).
- Scoundreller 5y agoSimilar thing happened in Canada. A uranium miner set up a shell company in Switzerland and sold its future production to them at a market low. If the price went up, all of the profits shifted. If it went down, the subsidiary would go bankrupt and void the contract. The shell can shift its profits tax-free back to the Canadian parent.
- pdpi 5y agoSave on taxes, get hit by fraud charges instead.
- OskarS 5y agoIf you're prepared to commit criminal tax fraud, there are many better ways you can earn money.
- wruza 5y agoMy friend asked for a complete list for an essay.
- NullPrefix 5y agoNot a complete list, but Key and Peele have one suggestion https://www.youtube.com/watch?v=ceijkZQI1HM https://www.youtube.com/watch?v=ceijkZQI1HM
- papito 5y agoThe first thing I thought of immediately was "paying no taxes has become easier than ever". 1. Sabotage your company security 2. Stage a ransomware attack with enough plausible deniability 3. Get a fat bonus The IRS does not have enough muscle to get to the bottom of this, so this works out great.
- blackoil 5y agoA small business can always claim someone took there bag of cash on gunpoint. How common is that?
- hellbannedguy 5y agoYea, but 20 million?
- mtmail 5y agoIn Germany Theo Albrecht (one of the Aldi founders, Forbes richest #31) tried to deduct his kidnapping ransom payment ($2mil USD in 1971) as tax deductable business expense. It went to court and was denied.
- deleted 5y ago[deleted]
- emteycz 5y agoWell yeah, seems like personal tax thing... which aren't necessarily but still can be profit/loss based.
- Scoundreller 5y agoI guess the founder wasn't key to the organization and wouldn't pay.
- st_goliath 5y agoI kind of find it funny how there are several threads were people discuss this as a tax loop hole, but assume that you'd actually have to stage a ransomware attack in order to use the loop hole. That would entail actual work, reduce company productivity and induce steps that could go wrong along the way. I'd call that Rube-Goldberg style tax evasion.
- deepserket 5y agoI am not able to understand what you are saying. You could just stage a ransomware before a prolonged downtime (eg. phishing happy new year emails from an account with a leaked credentials in the source code that's accessible via website.com/.git) and hope that one of your employees will click on the attachment. That would be quite easy IMHO
- st_goliath 5y agoYou are thinking way too complicated. Ok, let me just put the moral compass aside for a moment and put on my John Grisham fanfic hat so I can answer to this: You simply buy $CRYPTO_CURRENCY, siphon the money off into a shell company in your favorite tax heaven, write it up as ransom payment, done. You might not even need the first step by having the shell company pretend to be a crypto currency exchange. If you are a big enough company to bother with shell company tax evasion shenanigans, you probably have enough departments that some of them barely know each other or communicate. Spreading a rumor of a single department being hit by ransomware should be enough in case someone from the IRS actually bothers to come by and ask around. If you really must, maybe pay someone in IT some hush money and ask them to turn a few servers off for a day or so to put up a convincing show. I'd advise against that though, since in my experience, technical people are notoriously bad at lying about technical things. But actually phishing your own employees and staging a real ransomware attack is an unnecessary risk with too many variables where things might actually go wrong. Besides, the people pulling the strings here may have a law and/or accounting background, but probably not IT.
- n_time 5y agoDo American corporations even pay taxes?
- rmah 5y agoIn 2014, american corporations paid apx $600B in income taxes and $600B in wage taxes (the company's portion of social security). In addition, they pay another $100B in excise taxes and $400B in sales tax to state governments.
- superjan 5y agoOh man. No, cybersecurity investments should be tax deductible.
- deadbunny 5y agoThey are...
- paulgb 5y agoI think this is the key quote: > "The cheaper we make it to pay that ransom, then the more incentives we’re creating for companies to pay, and the more incentives we’re creating for companies to pay, the more incentive we’re creating for criminals to continue," said Josephine Wolff In an ECON 101 sense, ransomware attackers want to set the price as high as they can such that the victim will pay. A rational victim will consider their tax bill in the cost/benefit calculation. So although giving a tax deduction for ransomware seems like it reduces the burden on the victim, in the long run it just increases the reward for the hacker at the expense of the treasury.
- fredgrott 5y agowith the Federal Government treating as a crime of terrorism does that mean the Airlines now have claim given 9-11 attacks? Seems that everyone is choosing an easy way out instead of the hard choice that needs to be made. I would rather see the hard choices made instead. IE, Maybe Russia cannot be directly attacked but certainly Russia forces in Ukraine can be attacked in a cyber manner,
- rapind 5y agoAnd now taxpayers are on the hook for shitty security. Hell why not?
- gogopuppygogo 5y agoBrrrrrr goes the federal reserve printing press. When you still have reserve currency status for the world you can do dumb things. Unfortunately those dumb things are catching up to us…
- fennecfoxen 5y agoTaxpayers are "on the hook" for this in the same way that taxpayers are "on the hook" if I decide to take an early retirement and support myself by gardening rather than earning $300k a year in a Silicon Valley tech job, and paying income taxes on that, and the same way that society is on the hook because I have stopped producing any meaningful contributions to its well-being. That is to say, it's a sliiiightly entitled way to look at the matter.
- y04nn 5y agoAs the FBI stated, each incident should be reported. If 80% of them go under the radar it would only make it harder to stop ransomware groups. Also, I think unreported breach of data should be punished, as along business data there is probably customers data involved. I don't know about the US but I think that in Europe this would be the case.
- foolmeonce 5y agoSo require reporting them for additional taxation. Not reporting being tax fraud is a stronger incentive than reporting for tax savings.
- fortran77 5y agoWhy wouldn't any legal business expense not be paid out of pre-tax dollars? Am I missing something?
- sandworm101 5y agoI don't see much that is controversial here. Losses due to crime such as assets being stolen are business losses. Certainly there is a modicum of willing victim participating here, but I don't see it as any different than other practices whereby a company is allowed to make security cuts and then deduct the inevitable crime-related losses. If the government really wants to reduce this then perhaps they should actually help companies. Setup teams to address these situations in real time. Put that extensive NSA internet spying network to good use and track these situations. When a company calls the FBI to report an ongoing ransomware attack, they shouldn't have to leave a message in hopes that maybe someone might call them back in a couple weeks, nor should they be told to report the situation to their local cops.
- asciimov 5y agoWe should be doing the opposite. We should investigate how the ransomware occurred and then fine the business depending on how preventable the attack vector was and how much it effected public interest.
- chii 5y ago> fine the business that would just incentivize businesses to hide and obscure their breaches.
- deleted 5y ago[deleted]
- tengbretson 5y agoUnless you're arguing that the attacker is a shareholder I don't see how paying out money to them wouldn't just be seen as a loss.
- motohagiography 5y agoThis what economists call "moral hazard." Simply, you get more of what you reward. https://en.wikipedia.org/wiki/Moral_hazard https://en.wikipedia.org/wiki/Moral_hazard What are the effects of mortgage interest payments being tax deductable, and given these, what do you think the effect of ransoms being deductable will be? If this policy weren't just dumb, it would be like these government people actually just want to create more chaos so they can direct it at target groups then only selectively respond to it as a way to paralyze opposition. Not to be political, but any sufficiently idiotic policy is indistinguishable from partisanism, imo.
- dboreham 5y agoMisleading: pretty much all expenses incurred by a US business are "tax deductible" in the sense that you subtract expenses from income to arrive at profit and it is profit that is taxed. So an expense needs to be explicitly prohibited by the IRS as legitimate in order to make the equivalent amount of profit subject to tax. They didn't prohibit ransom payments.