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Big Letdown

IRS fumbles security for its e-file system.

A recent report from the General Accounting Office (GAO) revealed the IRS didn't take adequate steps to protect the security of its e-file systems and electronically transmitted taxpayer data on 1999 federal returns.

As a result, unauthorized individuals could have accessed IRS systems and viewed and modified taxpayer data, says Sen. Fred Thompson (R-TN), chair of the Senate Governmental Affairs Committee.

More than 35 million taxpayers filed 1999 federal returns electronically, and the IRS expects 42 million will have filed their 2000 returns electronically by the time all those are submitted. Though there's no evidence of any security breaches, the GAO report ensures this process will be scrutinized closely.

The GAO report found the IRS didn't effectively restrict external access to computers supporting e-file. The agency also failed to securely configure operating systems on its e-file systems, implement adequate password management and user account practices, and use encryption to protect e-file data.

Even before the GAO report was issued, the IRS had taken steps to improve the system and ensure security for 2000 taxpayer data, according to Mike Dolan, national director of IRS policies and dispute resolution for accounting firm KPMG in Washington, DC.

The service is also establishing a cyber security center to monitor external access to IRS systems 24/7.

Great Falls, Virginia, writer Joan Szabo has reported on tax issues for more than 14 years.

This story appears in the October 2001 issue of Entrepreneur. Subscribe »