Lawmakers push IRS to account for lost taxpayer records

Two Republican lawmakers are asking the Internal Revenue Service to explain what happened to microfilm cartridges filled with years’ worth of taxpayer data that appear to have vanished.

Senate Finance Committee member Chuck Grassley, R-Iowa, and House Ways and Means Committee chairman Jason Smith, R-Missouri, sent a letter Friday to IRS Commissioner Daniel Werfel asking about a recent report from the Treasury Inspector General for Tax Administration that found the old backup cartridges were missing (see story).

The report found the IRS was unable to locate any of the fiscal year 2010 microfilm cartridges that should have been sent from its tax processing center in Fresno, California, to its processing center in Kansas City, Missouri. As a result, according to the report, the IRS could not account for thousands of microfilm cartridges containing millions of sensitive business and individual tax account records that could be used for identity theft.

The lawmakers noted that more than 100 backup cartridges, each storing up to 2,000 photos of tax information, were allegedly sent for reformatting by an outside contractor in 2013, but the IRS doesn’t know where the cartridges currently are, and the contractor went out of business in 2018. Meanwhile, 15 pallets of backup records that should have been sent to the Federal Record Center five years ago instead have been sitting at an IRS distribution center.

IRS policy requires backup records be stored in controlled areas, but at some IRS processing centers, any employee can access them. IRS managers told TIGTA they can’t recall the last time a mandatory annual inventory of backup records was done.

“The loss of millions of records containing sensitive taxpayer information is unacceptable,” Grassley and Smith wrote. “The information contained in these backup records can be used by nefarious actors to commit tax fraud and identity theft. The IRS’s lackadaisical attitude towards the loss of millions of taxpayer records containing Social Security numbers, addresses and other sensitive tax return information is appalling.”

The lawmakers asked Werfel what steps the IRS has taken to investigate the disappearance of millions of tax records on the backup cartridges and whether the agency has told individuals and businesses their sensitive data could be compromised, as well as how it’s holding employees accountable for losing backup records.

They also objected to the response from an IRS official in the report to TIGTA’s findings. “The report highlights the impact of challenges the IRS has experienced over the course of the last decade from the attrition of experienced staff due to reduced funding and, subsequently, the effects of the recent pandemic,” wrote Kenneth Corbin, commissioner of the IRS’s Wage and Investment Division. “As the ranks of experienced staff were reduced, redirection of those employees to higher-ranking priorities affected our ability to maintain desired standards of control for lower-risk programs, including timely updating inventory records of the microfilm cartridges at the Submission Processing Centers. Corbin noted that the closure of the processing center in Fresno, which was underway even before the pandemic and could not be postponed, contributed to the inability to account for all microfilm cartridges during the period reviewed by TIGTA. But he said the IRS would continue to work through the shipments of records sent to the remaining submission processing centers by IRS locations around the country, including from Fresno and he is confident the remaining cartridges will be incorporated into the repository in Kansas City.

The IRS disagreed with two of TIGTA’s 13 recommendations in the report, and the lawmakers objected to his rationale. “Even though TIGTA found serious deficiencies with the IRS securing and storing the backup cartridges containing sensitive taxpayer information, IRS Commissioner Corbin disagreed with these recommendations on the grounds that the IRS already had sufficient processes in place,” they wrote.