Electronic tax filing on the rise, despite security concerns

More taxpayers are filing their returns electronically, despite computer security concerns, according to the Internal Revenue Service. Through March 15, nearly 30 million individual taxpayers submitted returns electronically--a 10 percent increase over the same period last year, according to agency statistics. During a hearing Monday before a House Government Reform subcommittee, IRS Commissioner Charles O. Rossotti said the agency has been working to improve security for the e-filing system and taxpayers should feel comfortable using electronic means to file their tax returns during the 2001 tax season. In February, the General Accounting Office released a report criticizing the IRS for security gaps in its electronic filing program during the 2000 tax filing season. GAO auditors hacked into the agency's computer system, gaining access to taxpayer information. The system contained the tax records of more than 35 million people. Taxpayers can files their federal tax returns online or over the phone, using the TeleFile system. "During the past year, the IRS completed a sweeping set of changes and upgrades to add an extra layer of protection for the millions of taxpayers using the e-file program. We have strengthened our system's security and we will remain vigilant to keep our e-filing processes the safest possible," said Rossotti. The 1998 restructuring law calls for 80 percent of all tax and information returns to be filed electronically by 2007. Despite the increase in electronically filed tax returns, Rossotti said reaching that goal will be difficult. Robert F. Dacey, director of information security issues at the General Accounting Office, said that during the 2000 tax filing season, many taxpayers who filed returns electronically may not have known that intermediaries who send their tax information to the IRS could have viewed and changed their data. The IRS does not allow taxpayers to transmit electronic tax returns directly to the agency; individuals filing online must use one of the agency's trading partners, who then sends the taxpayer's information to the government. Dacey said the IRS has implemented many of GAO's security recommendations, including improved access controls over the agency's electronic filing system and networks, and taxpayer notification of e-filing privacy risks. But he said the agency needs to remain vigilant when it comes to computer security and taxpayers' privacy. Although Rossotti said the 2001 tax filing season has been "smooth and error free" so far, he acknowledged that the agency still faces many other challenges, including inefficient financial management, obsolete computer systems, and low audit rates. "Replacing virtually the entire technology infrastructure in the next 10 years, while also delivering short-term service improvements demanded by taxpayers, employees, and the Congress, remains an enormous challenge fraught with risk. But we have no choice, we must move ahead for the good of America's taxpayer," said Rossotti. President Bush has proposed close to $400 million for the modernization of IRS' outdated computer systems in his preliminary fiscal 2002 budget.