Software makers eye IRS overhaul

A provision in the "taxpayer bill of rights," part of the Internal Revenue Service overhaul bill making its way through Congress, would give new protection to computer software companies that develop tax-preparation programs.

The provision would protect software developers against attempts by the IRS to look at the source code of tax-preparation programs, something the IRS argues it must do in order to audit an individual or company. The IRS contends that understanding the underlying logic of a tax-preparation program is necessary for accurate audits.

Gene Goldenberg, vice president of software development at Block Financial, disagrees. "Our concern is that, if the IRS is auditing someone's tax return, it is the data at issue and not the method with which it was arrived at."

"We have an interest in keeping anyone, be it the government or otherwise, from nosing through our source codes," added Goldenberg. "The object code should be sufficient, and for that they can just go out and buy the product."

The proposed provision, which arose from recent disputes in which the IRS attempted to gain access to source codes, is primarily aimed at protecting expensive, proprietary codes developed for large businesses, as opposed to programs developed for end users and tax-preparers.

Software developers feel that turning over their source codes to the IRS is akin to giving away their trade secrets, especially since the agency likely will hire consultants from within the ranks of their competitors to analyze the programs.

The Software Publishers Association, a Washington trade group that pushed for the provision, believes that the protection of trade secrets is indeed at the center of the controversy.

Goldenberg maintains that protecting source codes is of fundamental importance to developers. "We have an interest in keeping anyone, be it the government or otherwise, from nosing through our source codes," he said.

The proposed legislation, which passed in a House of Representatives committee on October 23, is expected to be put to a vote by the entire congressional floor as early as next week.