IRS unable to locate millions of tax records, watchdog says

The IRS lost track of millions of sensitive individual and business tax records that should have been transferred from a closed agency facility in California and is also unable to locate thousands of records that were stored at a facility in Utah, according to a new watchdog report.

As part of a review of the IRS’ mandatory storage of old tax records in microfilm backup cartridges, the Treasury Inspector General for Tax Administration said in a report released Thursday that it found significant deficiencies in safeguarding and accounting for millions of tax records that contain sensitive taxpayer information.

The watchdog said it found seven empty boxes at the IRS’ facility in Ogden, Utah, that should have contained as many as 168 microfilm cartridges, which hold up to 2,000 photographic images each, and that the IRS personnel there were unable to point to the location of the cartridges.

TIGTA noted that this may be because the vendor responsible for creating the cartridges went out of business abruptly in 2018.

The IRS also can’t find any cartridges containing tax records from fiscal year 2010 that were supposed to be transferred to its Kansas City processing center from its processing center in Fresno, Calif., when it shut down in 2021.

“The personal taxpayer and tax information included on these backup cartridges is key information that can be used to commit tax refund fraud identity theft,” the report said.

The IRS has come under fire before by Republicans for improper handling of taxpayer information, such as its destruction of 30 million paper tax returns in March of 2021 during the height of the pandemic that subsequently caused an outcry from the tax community.

GOP lawmakers have likewise hounded the agency to explain how nonprofit news organization ProPublica got its hands on a trove of thousands of tax returns from the nation’s wealthiest people that it used for a June 2021 exposé.

The IRS watchdog further said that agency personnel have not been doing required annual inventories of the microfilm cartridges and urged the IRS to better restrict access to the tax records. The cartridges at the Ogden facility are stored on open shelving in the middle of a large warehouse, TIGTA noted.

IRS Wage and Investment Commissioner Kenneth C. Corbin said in a letter in response to TIGTA’s report that persistent underfunding of the agency had forced it to redirect employees responsible for the cartridge inventories to higher priorities.

Corbin said the agency is still working through shipments of tax records to submission processing centers across the nation and that officials are “confident that as the backlog of non-tax documents is processed, the remaining cartridges will be incorporated.”