NewsNotes

Lesli S. Laffie, J.D., LL.M.

AICPA Estate Tax Study • OID Guidance • E-Filing Security • Growth
of the Code (Chart)

AICPA Activities

Estate Tax Study

After a year-long effort, the AICPA Tax Division has completed a Study on Reform of the Estate and Gift Tax System. The Study, developed by the Trust, Estate and Gift Tax Technical Resource Panel's Estate Tax Repeal Task Force, provides an overview of the arguments others have made both for and against the current transfer tax, a summary of the current system and a description of possible modifications and alternatives (including outright repeal). For each modification or alternative, there is an analysis of its impact on taxpayer behavior, complexity and compliance, liquidity, redistribution of wealth, tax and succession planning, revenue and transition issues, as well as a discussion of advantages, concerns, suggestions and conclusions for each modification and alternative.

This study confirms that significant reform of the U.S. transfer tax system is appropriate and should be undertaken as quickly as possible. The study identified a number of significant issues and makes substantive suggestions that the AICPA hopes legislators will consider in crafting proposals.

The Study offers suggestions on each of the alternatives not as a matter of ideology or social policy, but as a result of the AICPA's collective judgment as to the best way to achieve simplicity, reduce taxpayer compliance burdens, improve ease of administration and address revenue considerations for the overall tax system.

The Study, including an executive summary, is available on the AICPA website at www.aicpa.org/members/div/tax/index.htm ; see also DC Currents, this issue.

From the IRS   

OID Guidance

The IRS has released Pub. 1212 (2000), List of Original Issue Discount Instruments, designed to (1) help identify original issue discount (OID) debt instruments for brokers and other middlemen so they can file Form 1099-OID or 1099-INT as required and (2) assist owners of publicly offered OID debt instruments in the determination of how much OID to report on their income tax returns. This document is free and is available either (1) by calling the IRS's toll-free telephone number, 1-800-TAX-FORM (1-800-829-3676); (2) via the World Wide Web at www.irs.ustreas.gov/prod/cover.html ; (3) through FedWorld (www.Fedworld.gov); or (4) by directly accessing the Internal Revenue Information Services bulletin board at (703) 321-8020, except where noted.

Technology

E-Filing Security

The General Accounting Office (GAO) recently released a Report to the Chairman of the Senate Committee on Governmental Affairs, entitled Information Security—IRS Electronic Filing Systems. The report examines the computer controls of the IRS's electronic filing (e-filing) systems and electronically transmitted taxpayer data that ensure information security.

According to the GAO, during last year's filing season, IRS computer controls were inadequate.

During the 2000 filing season, the GAO demonstrated that hackers could have gained access to the IRS's e-filing systems, as well as the electronically transmitted tax return data held by those systems. Such access would allow an individual accessing the data to view and modify the taxpayer data.

The GAO identified the following five major shortcomings in the IRS's e-filing systems:

• Computers that supported the e-filing program were not effectively restricted to external users.
• The operating system that ran the e-filing systems was not securely configured.
• Sufficient password management and user account practice implementation were lacking.
• Access to computer files and directories that contained tax return information and e-filing system data was not adequately restricted.
• The IRS had not yet begun to protect tax return data with file encryption.

Technical recommendations included improvement of specific access controls dealing with the e-filing systems and networks. The GAO also suggested that the IRS complete certification and accreditation of its e-filing systems, assess security risks and routinely monitor effectiveness of access controls dealing with such risks, improve data reliability and integrity controls and notify taxpayers of privacy risks associated with e-filing.

On notification of the problems with its e-filing systems, IRS officials moved quickly to correct the weaknesses identified by the GAO before the beginning of the 2001 tax filing season. However, the GAO plans to monitor the system to ensure the success of the IRS's steps taken to correct the e-filing problems.

In addition, the Office of the Treasury Inspector General for Tax Administration (TIGTA) is working with the IRS to develop a cadre of computer specialists and criminal investigators to respond to external computer intrusion incidents. The new team will also investigate inte ntional disruption of the IRS network and conduct recurring systems penetration tests to detect new vulnerabilities.

Recent TIGTA audits have identified significant weaknesses in the areas of intrusion detection, disaster recovery, physical security of facilities and systems and certification of security controls for sensitive systems. The risks are not from external forces only; unethical employees have also viewed and manipulated taxpayer records. TIGTA uses detection criteria that search the IRS's tax administration files to uncover employees' unauthorized access to taxpayer information.

As a result of TIGTA's detection of that unauthorized access, 373 IRS employees have either resigned or been removed. In 65 cases, the IRS successfully criminally prosecuted the former employee.

Growth of the Code (estimated number of words)