California offers Net tax filing

Electronic filing will be more convenient for some taxpayers, but such systems also bring up privacy and reliability issues.

4 min read
As tax season sneaks up again, Californians will have a new tool to beat the April deadline: online filing.

This year, the Golden State is plowing forward with a system that lets many of its 13 million taxpayers file their returns electronically through a third-party processing firm, a dedicated computer network, and a tax return software program. As with the state's TeleFile phone system, filers using 540EZ forms can file online and will get their refunds within ten days--much faster than those using paper forms and postage stamps.

Electronic filing will no doubt be more convenient for some taxpayers, but such systems also bring up privacy and reliability issues that government technology services have triggered before.

Like a similar service now offered by the Internal Revenue Service for basic individual tax returns, the California Franchise Tax Board is using an electronic filing system by Nelco Incorporated, which charges $4.95 for transmitting a return to the board.

Even those who owe taxes can file using a computer, as long as they mail in a voucher with the payment by April 15. Online filers expecting returns still have to mail in a signed "Tax Declaration for Electronic Filing" along with their W-2 forms. The state is testing out a completely paper-less system.

"We're excited about all of these new services. We think it's one of the easiest ways people can get free tax assistance," Jim Shepherd, a spokesman for the tax board, said today.

Proving that online services are in demand, when the IRS publicized an online tax forms service last year, its servers were quickly overloaded with requests, leaving many visitors locked out. (See related story)

California will try to avoid that predicament. "We're prepared to handle the traffic--hopefully people will use it," Shepherd said.

Also, before online filing becomes extremely popular, citizens will have to trust the security of any service that requires them to ship highly personal information over computer networks. As the tax board tries to convince residents how easy it is to file electronically, privacy experts are saying that California has been extremely careless with the sensitive data included in paper tax booklets sent via regular mail.

For example, the state's TeleFile booklet sent out last month exposed on its cover recipients' social security numbers (SSN) and a personal identification number (PIN) to be used when taxpayers file returns using the state's automated phone system. The Tax Franchise Board says the mailing has been done that way for years.

But personal data must be more closely safeguarded in the information age, privacy advocates contend, especially with the growth of the Internet and computerized databases. These technologies make it easy to create digital profiles of people that help others track down their financial accounts, employment history, and even medical condition, in some cases. Aside from a person's first and last name, all one often needs to unlock most sensitive files is a social security number.

"I think that it is egregiously irresponsible for the California Franchise Tax Board to put a social security number and PIN on a mailing label for all the world to see," said Beth Givens, project director for the Privacy Rights Clearinghouse.

"I spend a good part of every day talking to victims of identity and credit fraud," she added. "The practice of the FTB of displaying the social security number on the mailing label makes it all that much easier for identity thieves to perpetrate their crimes, on and off the Net."

December was the last the time California will send out tax booklets with the social security numbers in plain sight, said Denise Quade, spokeswoman for the state tax board. A law that went into effect in January prohibits displaying SSNs as well as credit card or driver's license numbers on a mailing label.

"It's about $1 million to use concealed envelopes, and we weren't budgeted for it this year. We'll have to do it next year," she said.

Despite privacy concerns, Shepherd said he had never heard of any cases of fraud that resulted from an SSN being lifted off a mailing label. "We've never had a problem with that. One alternative was to put it inside tax booklets, but that is still accessible if it's in a mail box."

In 1992, the Electronic Privacy Information Center drafted an amicus brief in Ingerman vs. United States, arguing that the Internal Revenue Service's practice of openly displaying SSNs on mailing labels violated the Privacy Act of 1974. Although the court disagreed, the IRS discontinued the practice anyway.