IRS computer systems faulted

The IRS said security of taxpayer data "is of paramount importance" to the agency and, as noted in the report, it had implemented many of its recommendations and taken steps to improve security. It stressed that no taxpayer data has been harmed and numerous security safeguards were in place.

The report focused on the Customer Account Data Engine, which will provide the foundation for managing all taxpayer accounts, and the Account Management Services system, which will provide faster and improved access by employees to taxpayer account data.

Both systems are gradually being put into use. CADE, expected to cost more than $1 billion through 2012 to develop and operate, this year processed about 20 percent of the 142 billion returns filed. The Account Management Services system, AMS, still in its initial stages, will cost more than $700 million to develop and maintain through 2024.

The IG report said the IRS organizations responsible for giving the go-ahead to partial deployment of the systems were aware of security and privacy problems but did not consider them significant.

But it said those vulnerabilities increased the risks that unscrupulous people could gain access to vast amounts of taxpayer information with little chance of detection and that systems could not be recovered effectively during an emergency.

It said administrators to the CADE system could access, modify, and delete information without being detected and contractors could make system changes without approval.