IRS: 1980s technology, screening keeps e-filing safe

As droves of procrastinating U.S. wage earners rush to file their federal tax forms ahead of Thursday's midnight deadline, many of them electronically, a senior U.S. Internal Revenue Service (IRS) official says that the agency's singular focus on security, coupled with 1980s technology, keeps taxpayers' sensitive tax information safe from malicious hackers and online criminals.

The IRS will process around 60 million electronic tax forms this year out of the 130 million tax returns it receives. But the IRS still relies on legacy systems, leased-line or dial-up connections and a network of closely screened "practitioners" to submit returns, even as banks and brokerage firms have moved aggressively to Internet-based consumer services in recent years, said Terry Lutes, associate chief information officer of the IRS.

"We've got some systems in here that qualify for AARP membership," Lutes said, referring to the American Association of Retired Persons, a lobbying group representing the interests of people over 50.

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As droves of procrastinating U.S. wage earners rush to file their federal tax forms ahead of Thursday's midnight deadline, many of them electronically, a senior U.S. Internal Revenue Service (IRS) official says that the agency's singular focus on security, coupled with 1980s technology, keeps taxpayers' sensitive tax information safe from malicious hackers and online criminals.

The IRS will process around 60 million electronic tax forms this year out of the 130 million tax returns it receives. But the IRS still relies on legacy systems, leased-line or dial-up connections and a network of closely screened "practitioners" to submit returns, even as banks and brokerage firms have moved aggressively to Internet-based consumer services in recent years, said Terry Lutes, associate chief information officer of the IRS.

"We've got some systems in here that qualify for AARP membership," Lutes said, referring to the American Association of Retired Persons, a lobbying group representing the interests of people over 50.

Much of the electronic filing, or "e-filing," system is the same today as in 1986 when it began as a program to create a bridge between early tax preparation software used by professionals and the IRS' back-end systems, many of which date to the early 1960s, he said.

Initially piloted in the Cincinnati area, the program was deployed nationwide soon after, and allowed tax professionals, who prepare around 55% of all individual tax returns and 90% of all business returns, to submit those forms electronically to the IRS using dial-up connections.

Beginning in 1996, the IRS extended the e-filing system, working through personal tax preparation software companies like Intuit, maker of TurboTax, to give nonprofessionals the ability to file online.

Approximately 166,000 individuals filed electronically in 1996. This year, more than 12 million U.S. taxpayers are expected to do so, an increase of 25% over the previous year. However, behind the scenes, little has changed.

"The software companies have put a more glamorous face on (e-filing), but most of it works according to the 1986 system," Lutes said.

Electronically submitted tax forms do not pass directly into the IRS' back-end systems. Instead, they are submitted to the IRS by so-called "transmitters," like Intuit, which sell tax preparation products or services. IRS employees then separately import the returns to back-end servers, Lutes said.

"They bring them up to the doors of the facility, and we hook them into our internal systems," he said.

That physical separation, coupled with careful screening of tax professionals who prepare returns and the transmitters that sell electronic filing products, has kept the system secure over the years, Lutes said.

"Most of the e-file traffic today is not on the Internet. In order to get access, you have to be approved," he said.

The IRS screens principals in companies who prepare tax forms, assigning e-file user names and passwords only after conducting criminal history and tax compliance checks and verifying the preparer's address, phone number and other identifying information.

The IDG News Service is a Network World affiliate.