Your Favorite Bureaucracy Goes Digital

Privacy experts reel as the IRS rolls out a pilot program to transmit tax information via e-mail.

The IRS is getting set to join the wired world. The tax agency recently proposed a pilot program that would make it possible for it to use secure e-mail to deliver tax returns to taxpayer-designated third parties who want to verify a taxpayer's income.

Authorized third parties include tax practitioners, small-business lenders, universities, mortgage companies and other financial institutions that seek income verification for loans, grants or subsidies. While the proposal promises to provide taxpayers with faster and more efficient service, privacy experts are alarmed at the prospect that it could lead to the misuse of sensitive tax information.

Automated For The People

The pilot program would automate a paper system already in use by the agency. As it stands now, taxpayers can ask the IRS to send a copy of their return to third parties. They often do this when applying for a mortgage, a small-business loan, disaster aid, or an education loan or grant.

In the current paper process, the taxpayer completes IRS Form 4506, "Request for Copy or Transcript of Tax Form," which authorizes the IRS to release this information. The IRS says it currently responds to more than six million requests from tax payers each year for copies of paper tax returns, transcripts of returns as well as verification of nonfiling and copies of W-2s. Of those six million requests, about two million are from taxpayers asking that tax information be sent to a designated third party.

The request can take several weeks to complete. That would change, however, once the pilot program goes national. With secure e-mail, these types of requests could be handled in 24 hours or less, says Robert E. Barr, IRS assistant commissioner for electronic tax information. Barr is in charge of IRS efforts to move more services online. Under the pilot program, a taxpayer could complete and submit an electronic Form 4506 directly via computer.

So how would the proposal affect entrepreneurs? If an entrepreneur is applying for a federally guaranteed loan, for example, he or she must prove need, explains Barr. In such a case, the business owner would have a copy of the tax return sent to the lender and delivery via e-mail would take place in a day or so.

Quick turnaround on these requests would be very helpful, says small-business analyst Susan Jacksack of CCH Inc., a Riverwoods, Illinois-based provider of legal, tax and business information.

Joan Szabo is a writer in Great Falls, Virginia, who has reported on tax issues for more than 13 years.

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This article was originally published in the April 2000 print edition of Entrepreneur with the headline: Your Favorite Bureaucracy Goes Digital.

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