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"HANDHELD HACKERS" CRACKED IRS TAX RETURNS IN 2000: GAO

Posted on March 20, 2001

      Hackers broke into the Internal Revenue Service's computer system last year using a handheld wireless device and gained access to Social Security numbers and other sensitive information on electronically filed tax returns. The guilty party is the U.S. government itself.

      At a time when the IRS is pushing online tax filing, the General Accounting Office (GAO) released a report last week showing just how vulnerable the IRS systems are--or, at least, were. Investigators gained access to a key electronic filing system using a personal digital assistant (PDA). "Our tests, which successfully identified and exploited weaknesses in the IRS' e-file computers, were not sophisticated," the report states.

      IRS spokeswoman Terry Lutes says in a published report that the federal tax agency has corrected the problems with its E-File system discovered by GAO investigators. Online security is critical to the IRS, which expects 80 percent of tax filings will be done electronically by 2007. Lutes also stressed that no outside hackers penetrated the system. "It was government people, GAO people, doing it," she says.

      Weaknesses exploited by GAO auditors included improperly configured operating systems, inadequate password management and lack of encryption on electronic returns. The GAO also discovered the IRS refunded $2.1 billion to e-filers who failed to sign or authenticate their returns. The IRS says it now has a new identification number system to make sure signature forms are filed when an identification number isn't used.

      Last year 35 million individual taxpayers -- or 27 percent -- filed their federal returns electronically. That number is expected to increase to 33 percent in 2001.

      Meanwhile, tax preparation service Web sites continue to have their ups and downs. Most recently, tax preparation site e1040.com was shut down briefly in February when a technician discovered its encryption software was accidentally switched off. Last year, H&R Block accidentally switched some filers' records, allowing some registered users signed on to the service to receive someone else's tax return information.

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