Electronic Tax Returns Open Niche for PenOp

Electronic Tax Returns Open Niche for PenOp

By Nick Wakeman
Staff Writer

Federal laws requiring electronic filing of tax returns and other initiatives to boost government efficiency are creating opportunities for a small New York City software company to crack new markets.

PenOp Inc. officials are working on a pilot for the 1999 tax filing season with the Internal Revenue Service to use digitized signature software for taxpayers to sign their returns and electronically validate that they are who they claim to be. Their goal is to vault from a $5 million concern in 1998 to a $100 million by 2002 using the IRS pilot and work for other federal agencies and state and local governments, company officials said.

Legislation signed by President Clinton last week to reform the IRS calls for the agency to accept and process 80 percent of its returns electronically by the year 2007.

"The processing of paper [at the IRS] is just mind-boggling," said Lisa Broderick, chief executive of PenOp. PenOp has been working the IRS on electronic filing pilots for about three years and has netted about $200,000 from the agency so far, Broderick said. Other agencies the company is interested in pursuing include the Food and Drug Administration, U.S. Customs Service and the Environmental Protection Agency, she said.

PenOp's advantage is it combines the mechanics of a signature with electronic authentication and binds the information to an electronic document, said Cal Braunstein, principle analyst with Robert Francis Group, an IT research firm in Westport, Conn.

The company has patented its process, so "they really are unique," Braunstein said.

To push its software, PenOp is looking for more partnerships with systems integrators such as relationships it has with Unisys Corp. of Blue Bell, Pa., in the federal market and Federal Data Systems Inc. of Atlanta in the state and local market.

The company also is working with other software companies to include PenOp software with its products, Broderick said. Agreements with those companies precluded her from naming them, Broderick said.

The agency is exploring ways to have taxpayers file electronically, said Steve Holden, national director of electronic project enhancements at the IRS. The IRS also is working H&R Block of Kansas City, Intuit of Menlo Park, Calif., and the National Association of Enrolled Agents on other electronic filing approaches.

PenOp's system allows taxpayers to sign an electronic version of their tax return using a stylus and a touch pad connected to the computer. Software links the signature to the document. The system compares the signature against an a signature stored in the system earlier to verify it is the same person, said Kirk LeCompte, vice president of marketing for the company.

To battle forgery attempts, the software compares the look of the signature and about 90 other biometric measures. These include how the letters are formed, speed of signing, how many times the pen is lifted from the pad and even the angle at which the pen is held.

"PenOp has some interesting characteristics," Holden said. But one issue the agency is evaluating is whether the need for a peripheral touch pad will make tax preparers and citizens reluctant to use a PenOp type system, Holden said.

But the falling cost of the touch pads, which retail for about $40, is one reason PenOp sees a growing market for its signature software, Broderick said. Many laptops now feature built-in touch pads and the cost of touch pad that attach to the computer are dropping. There also is the growing popularity of hand-held devices such as 3Com's PalmPilot.

"We think [touch pads] are like the mouse was 15 years ago," she said. Someday touch pads will be as ubiquitous as the mouse, she said.

The company also is working on software with the IRS that would accept a variety of biometric inputs besides a signature to authenticate a person, including iris scans and voice recognition, Broderick said.

In the state and local market, PenOp wants to build off a system it helped develop for Gwinnett County, Ga. Working with Federal Data Systems, PenOp created a system where officers and judges can sign and swear out arrest warrants using the signature software and videoconferencing rather than appearing in front of each other.

PenOp Inc.
Based: New York City
Chief Executive: Lisa Broderick
Founded: 1990
Employees: 40
Estimated 1998 Revenue: $5 million
Web site: www.penop.com

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