During an investigation conducted last year of the IRS e-filing system, the GAO said it was able to access taxpayer's electronically filed tax returns. The report said the investigation uncovered "serious weaknesses" in the IRS e-filing system that put taxpayer information at risk.

Because of government guidelines, the IRS was aware of the investigation and aided investigators with information otherwise unknown to hackers, which may have made the breach easier. The report also found no evidence of prior hacking into the IRS systems.

An IRS spokesperson said three-dozen upgrades have been made to the e-filing system in the last year and that taxpayers should feel safe using the e-filing system. In particular, the IRS has worked to enhance its computer security incident reporting and analysis to detect system intrusions, the spokesperson said.

"The GAO report acknowledges that we have moved swiftly to make improvements," the spokesperson said.

Because of the IRS improvements, the GAO report said the IRS e-filing system satisfactorily meets security requirements to safeguard taxpayer data.

According to the GOA report, investigators were able to gain access to the e-filing system because the IRS had not:

• Effectively restricted external access to computers supporting the e-filing program
• Securely configured the operating systems of e-filing systems
• Implemented adequate password management and user account practices
• Sufficiently restricted access to computer files and directories containing tax return and other system data
• Used encryption to protect tax return data on e-file systems

The GAO report also said that the IRS did not adequately inform taxpayers of the risks related to filing electronic tax returns. As it does with all reports, the GAO said it will follow-up to test the effectiveness of the IRS' actions.

More than 35 million taxpayers filed electronically in 2000 and the IRS expects about 42 million this year.

Since 1986, the IRS has offered taxpayers the option to e-file. Payments can be made through an automatic withdrawal from a bank account or by credit card. For automatic withdrawal, taxpayers give the IRS their bank account routing and account numbers.

As of March 3, more than 25,000 taxpayers have authorized automatic withdrawals, an increase of 42 percent over the same time last year. More than 16,000 had charged their taxes, an increase of more than 171 percent over the same period last year.

-- By Dan Engel

Send comments to dane@pro2net.com.

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