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CAUTION URGED DOING TAXES ONLINE

Privacy, security could be at risk

Source: The Associated Press

Posted on March 15, 2000

      People entering the brave new Internet world with their most personal financial information - using online tax preparation services - should take care to ensure the sites respect the privacy of taxpayer information and can transmit returns securely, experts warn.

      "If you buy a book on the Internet and it's not a good book, you can return it," said Marty Bush, a tax expert at the consulting firm CCH Inc. "If you rely on information or software on the Internet to research or file your taxes and something's wrong, the repercussions could be expensive and scary."

      The US Internal Revenue Service projects that 33.6 million taxpayers will file federal returns electronically by this year's April 17 deadline, up from 30 million last year. For the first time, many are preparing and filing their returns directly on the Internet, trusting that passwords and computer technology will safeguard their sensitive financial and personal information far from home.

      Intuit Inc., maker of the leading TurboTax software, completed 632,000 US tax returns through its online service through Feb. 27, compared with only 240,000 during all of last year. About 1 million have begun returns on the H&R Block online site, but the company is not sure how many will finish.

      A shudder went through the industry earlier this year when 26 H&R Block customers were temporarily able to read other people's financial data because of a programming glitch caused by the company. After taking the system down for a week earlier this year for repairs, the company says things are now running fine.

      "We have taken every possible precaution to make sure that kind of programming error can never happen again," said Gene Goldenberg, senior vice president for software and e-commerce at Block.

      Even though hackers have never disrupted a tax site or the IRS, such mistakes could undermine consumer confidence in online preparation.

      "This kind of thing hurts everyone in our business," said Bob Meighan, personal tax vice president at Intuit.

      But government and company officials insist the system works well, as long as taxpayers choose a reputable Internet service and do a little homework.

      "It's a safe and secure system," said Robert E. Barr, assistant IRS commissioner for electronic tax. "In fact, electronic filers by and large do have a better experience."

      There are two things to keep in mind when choosing an online tax preparer: how the firm protects the privacy of taxpayer names and data, and the level of security for the storage and transmission of tax information.

      Federal law protects the privacy of taxpayer information such as 1040 forms, treating online services the same as a regular tax preparation firm with a physical office.

      The IRS requires all these firms to adhere to strict confidentiality requirements, which should be posted on the company's Web site.

      "It says, basically, thou shalt not use this data," Barr said.

      There are some gray areas, however. H&R Block, for example, will share "contact information" it collects on its tax site - name, e-mail address, mailing address, phone number - with other financial companies with which it has contracts.

      Taxpayers can request that their names not be shared by following instructions in a box that pops up as they begin preparing their returns.




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