Audit: IRS tax evasion systems need more security

The IRS needs to do more to ensure that computer systems central to anti-tax-evasion efforts are secure, according to a new audit.

The Treasury’s inspector general for tax administration said Thursday that the IRS had to ditch one system for registering foreign banks where U.S. taxpayers have accounts.

Those accounts are crucial to the Foreign Account Tax Compliance Act (FATCA), a 2010 law that seeks to curb the use of foreign accounts to evade U.S. taxes.

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The inspector general’s report did say that the IRS had made some strides in developing its registration system for foreign banks, after tossing aside its first version in November 2012.

But J. Russell George, the inspector general, added that the systems still needed to be better managed, and subject to stronger testing.

“The Foreign Account Tax Compliance Act can effectively improve U.S. tax administration involving offshore accounts by utilizing FATCA computer applications that are developed and implemented in a timely and effective manner,” George said in a statement.

The inspector general stressed that a top-notch registration system would help boost U.S. revenues, and how the IRS administers tax laws.

But to make that happen, George and his team say that the IRS needs to keep better track of the system’s test results.

IRS officials agreed with the audit’s recommendations but disputed the inspector general’s assertions that the agency was mostly to blame for the downfall of the first system.

“The major redesign was due to late regulatory changes, driven by significant public feedback on the draft regulations that impacted the in-flight system design,” said Terence Milholland, the IRS’s chief technology officer.

As the inspector general report notes, the system redesign also happened after the Treasury Department issued new regulations and as the U.S. was negotiating FATCA agreements with foreign governments.