IRS Readies Secret Tax Plan

Industry developers are anxious to unveil a system that would transform the way taxpayers file returns

P> An industry coalition is pressuring the Internal Revenue Service to roll out a quietly developed program to allow direct electronic filing of tax returns over the Internet.


The IRS won't say when and if they plan to launch the ambitious program, known as Cyberfile, but industry officials say the agency now has second thoughts because of concerns over protecting taxpayer's private information and verifying tax returns.

"Even if there is nothing announced immediately, it's a safe bet to say it's going to happen, whether at the end of this year or early next year," said Steve Smaha, president of Haystack Labs Inc., an Austin, Texas, software security company.

Under the proposed pilot project, the IRS would assign personal identification numbers, or PINs, to one million taxpayers who use such software programs as TaxCut, TurboTax and MacInTax. The PIN would serve as authentication and verification of the tax filer's identity, eliminating the current requirement for electronic filers to mail a signature form.

Anticipating an IRS decision to move forward with the pilot, Block Financial and Intuit already have incorporated the PIN requirement into their retail software products.

There are at least four major players on the Cyberfile project, and two of the firms expect Vice President Al Gore to announce the IRS breakthrough in the next couple of weeks.

"We have been working with the IRS and the software industry since this summer to advance the idea of direct electronic filing by taxpayers, and we are hopeful that a pilot project can get underway this year or next year to demonstrate this can be practical for the taxpayer and the IRS," said Gene Goldenberg, vice president of Block Financial Corp., Kansas City, Mo.

Block Financial is an arm of H&R Block, which controls 25 percent of the tax preparation software market with its product, Kiplinger's TaxCut.

Three other major players include BTG Inc., Vienna, Va., a specialist in Internet electronic commerce; Intuit Inc., the Menlo Park, Calif., maker of TurboTax and MacInTax, the most widely used PC tax preparation software packages with 75 percent market share; and Netscape Communications Corp., the Mountain View, Calif., firm whose World Wide Web browser attracts about 40 million connections a day.

Although taxpayers today can file their taxes electronically, they still must go through a third party such as H&R Block or an on-line service provider such as America Online and CompuServe.

If the IRS moves forward with the Cyberfile pilot, the development could have dramatic effects on electronic commerce, signaling a willingness by the government to let sensitive information travel across telephone lines.

The undertaking is also known as the Global Online Electronic Filing Initiative, or GO-ELF. Although all the firms involved have signed non-disclosure agreements with the IRS, sources at several companies said the anxiety level is rising because the IRS has wavered for weeks on its decision to start the pilot program this year.

"Regarding Cyberfile, currently there has been no decision made on that subject," said Anthony Burke, a spokesman for the IRS in Washington, D.C. "It's a decision that will be made at the highest levels, and it has not been made yet."

Asked if there could be an announcement in the next few weeks, Burke said, "It may be, but I can't comment on it."

Smaha said there are two camps debating the best way to file a Cyberfile tax return: The taxpayer sends his taxes to FedWorld, the National Technical Information Service's on-line information network, by accessing the Internet, or he directly dials the IRS via modem and downloads the tax return.

"I think it's much safer to dial in," said Smaha.

The foremost technical problem remains security, and the IRS is trying to work out ways to verify the authenticity of a return, in addition to the PIN.

Heidi Kukis, a spokeswoman for Vice President Gore, said she knows of no impending announcement. But she added it's no secret that Gore wants people to be able to file a tax return directly to the IRS from home.

"That goal is part of the reinventing government initiative," said Kukis. "The vice president has said someday you will be able to file your taxes from your home, but we still have to overcome security issues."


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