INTERNET : Net returns from the taxman

Millions of Americans file their taxes electronically. Now the Inland Revenue is going on-line. Laurence Blackall reports

The Internal Revenue Service is probably America's least favourite institution. But the US equivalent of our own Inland Revenue has been working hard in reaching out to taxpayers. It is making tax forms available over the Internet.

This is a specific instance of a more general trend. As Britons discover the Internet, they will find plenty of evidence to suggest Uncle Sam has been there long before them. Most US government departments now have their own information services on the Internet, and their pages on the World Wide Web often include photographs of their buildings with soundbites from their respective secretaries of state. The Department of the Treasury (start at http://www.ustreas. gov/treasury/services/services.html) is no exception, and it provides the easiest route into the Internal Revenue's Information Service (Iris).

Iris does not look quite so pretty as the Web pages, nor does it have their friendly point-and-click features. But it is full of useful information - more than 500 tax forms and instructions, all of which can be downloaded on to a personal computer.

The system is remarkably easy to use and is supplemented by copious explanatory files as well as details on all formats and software.

Last year, 14 million Americans filed their tax returns electronically, taking advantage of the reduced processing time and the facility to file federal and state tax returns simultaneously. Doubtless many were unaware of how their returns were being submitted, because electronic filing can only be done by an "approved transmitter", usually an accounting firm. But filing electronically does not mean filing on-line via the Internet, and that, the IRS says, is not an option - yet.

One problem that has emerged already is that poorer taxpayers are less likely to file electronically - even with state taxes, where electronic filing has been available for two years or more. Hence the state of Massachusetts' decision to pioneer a new telephone system called Telefile. The one million New Englanders being offered the opportunity to "telefile" need neither an Internet connection nor even a computer, but just a touch-tone telephone. The system talks users through the process in eight minutes, requiring them to punch figures on their income into the phone.

It has been a remarkable success, with more than 90,000 people using the system in the three weeks since the trial was launched. Part of the popularity is doubtless attributable to the widely publicised draws offering $15,000 (£10,000) in prizes for "telefilers", but the system's ability to calculate and send refunds within four days is a much greater lure. Massachusetts is delighted, since the new system eliminates 80 per cent of the costs of processing returns.

The goal is not just to reduce costs. The US government's sophisticated use of the Internet is the result of a two-year initiative driven by the Government Information Technology Services (Gits). Jim Flyzik, the former chief of communications at the US Secret Service, who chairs the group, has a mission to "integrate information technology into government business processes to make government a customer-driven enterprise". So far, it seems to be working.

Washington's impressive "electronically open for business" attitude begs the question of what our government is doing on that front in Britain. The Inland Revenue is conspicuously absent from the list of departments and agencies whose names appear on the CCTA Government Information Service home page (http://www. open.gov. uk). The information provided by most of those listed is scant to say the least, with little more than a home page on offer, and "under construction" signs very much in evidence.

So when will electronic filing be an option for the British taxpayer? Surprisingly soon, is the answer. The Inland Revenue has recently piloted an Electronic Lodgement Service (ELS), confident at least that nobody would want to steal its name. As in the US, the plan is that, initially at least, only approved accountants will be able to file tax returns electronically.

Brian Handley, who has been managing the ELS pilot project, sees no great benefit in filing returns over the Internet, and has little confidence in the many attempts now being made to remove the security weaknesses on the Net.

Even distributing tax forms on Internet seemed irrelevant to Mr Handley, given that the forms' requirements are built into several Revenue-approved commercial software packages. That view may please software houses; British taxpayers will probably find it harder to swallow.