The Motley Fool has a nice blog post on issues involved in electronic filing of tax returns. There are a couple of important points to be made here. First of all...
- The IRS has all your information and it will be in digital format (accessible by computer);
- You are exposed to some points of vulnerability when filing electronically, rather than on paper;
- The information on your PC is vulnerable to theft (whether you send it electronically or just use tax software);
- Your information is vulnerable on the Internet-accessible servers to which you upload your data; but
- On the flip side of the coin, paper returns are subject to loss, theft and mishandling as well, both in transit and within the IRS.
It is somewhat similar to using a credit card. You can risk online theft when conducting an e-commerce transaction, or real-world theft when handing over your card to a minimum wage worker over a store counter. Risks exist both ways.
At this time I think the jury is out on which is safer, but, for the record, I file electronically.