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Taxpayers refuse to eFile because of security concerns

April 17, 2006

The U.S. Internal Revenue Service is detecting some resistance to its effort to encourage electronic filing and uploading of federal income taxes from millions of American taxpayers who don't want to file electronically because of Internet security issues among others.

In all, approximately fifty-five percent of U.S. taxpayers are expected to file their income tax using the Internet this year. That number is up from fifty-one percent last year.

But in 2005, over 36 million taxpayers (or their tax preparers) -- more than a quarter of individual filers -- did their tax returns on a computer, printed them out and mailed them to the IRS.

A mailed-in return costs $2.49 to process vs. 78 cents for one that's filed via the Internet, the IRS says.

A 1998 law directed the IRS to convert 80 percent of taxpayers to e-filing by 2007. Earlier this year, an independent oversight board recommended giving the IRS until 2011 to reach the target.

Two reasons taxpayers won't file electronically:

1. Money
In 2005, the IRS Free File program, a partnership between the IRS and private companies, allowed everyone to prepare and e-file federal returns for free. This year, the partnership limited free filing to taxpayers with adjusted gross income under $50,000.

Russ Saldi, 41, of Venice, Fla., used Free File in 2005 but is ineligible this year, so he'll mail his return. "I have no problem paying for the TurboTax software but do not want to pay extra to file electronically," he said in an e-mail.

A recent survey of Internet users by Questus found that about a third don't e-file because of the cost.

2. Fear
Mike Mahoney, 62, of Erie, Pa., downloads IRS forms, fills them out, then mails his return. He doesn't file electronically because he's not confident tax preparation companies provide adequate safeguards.

Mahoney e-files his state return because Pennsylvania residents can file directly to a state Web site for free. He says he'd e-file his federal returns if he could file directly to a secure IRS Web site.

Tax software companies and the IRS say the e-filing system has never had a security breach. TurboTax, the largest U.S. tax software company, uses the same encryption technology as the Defense Department, says spokesperson Scott Gulbransen.

IRS taxpayer advocate Nina Olson has argued that the IRS should offer a basic template on its Internet site that would allow taxpayers to prepare their taxes and file electronically for free.

She told a Senate committee this month that she used tax software to prepare her return this year, then mailed it in. Although believing that e-filing is best for taxpayers and the IRS, "I resented the notion that I would have to pay separate fees to prepare my return and to file it."

Bert DuMars, IRS director of electronic tax administration, says the agency doesn't have the computer capacity to handle millions of direct-filed returns. "Some of our systems are 20, 30, 40 years old. We need to modernize them, and it's not cheap."

Source: eCommerce Times

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