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The Internal Revenue Service lost millions of sensitive tax records of individuals and businesses, according to a new watchdog report.
The Treasury Inspector General for Tax Administration released a report last week finding that the IRS was not “adequately” safeguarding tax information when shipping it to and from processing centers. The watchdog found that the IRS can’t locate records that were supposed to be transferred from a facility in California to Kansas City, Missouri, and the agency is also missing thousands more records that were stored in Utah.
“Our review identified that the IRS is not adhering to its own internal guidelines when sending large volumes of sensitive taxpayer information to and from its Tax Processing Centers,” the watchdog report said, adding, “As a result, the IRS is unable to identify, notify, and/or offer protection to taxpayers when sensitive tax information is lost in the mail and at risk for potential identity theft.”
The watchdog said it found seven empty boxes that should have contained around 170 microfilm cartridges at a facility in Ogden, Utah, POLITICO reported. The cartridges hold up to 2,000 images each, and IRS employees at the facility did not know where they were. The report added that tax records from the 2010 fiscal year were supposed to be transferred from a facility in Fresno, California, to an IRS processing center in Kansas City after the California facility shut down — but the IRS couldn’t locate those records either.
“The lack of documentation identifying the specific taxpayers whose tax information is included in a lost package has impacted the IRS’s ability to notify and protect taxpayers,” the report added.
The IRS blamed underfunding for the problem, claiming that it has been forced to place employees responsible for inventories in other jobs, according to POLITICO. The IRS said it is “confident that as the backlog of non-tax documents is processed, the remaining cartridges will be incorporated.”
President Joe Biden’s Inflation Reduction Act passed last year included $80 billion in new funding for the IRS for the next ten years, allowing it to hire additional agents. The additional funding for the IRS was broken into four categories: enforcement, operations support, business system modernization, and taxpayer services, according to the Tax Foundation. The IRS said some of the new funding would specifically go toward “cutting-edge technology, data, and analytics to operate more effectively.”
Republicans on Capitol Hill have criticized the IRS for multiple instances of alleged mishandling of sensitive tax information. In 2021, the IRS destroyed 30 million paper tax returns, which “horrified” tax experts. GOP lawmakers also questioned the agency after ProPublica published an expose that included information from thousands of tax returns from wealthy Americans.