Oops! IRS Cannot Locate Millions of Individual and Business Tax Records

Somewhere between California and Utah, the Internal Revenue Service (IRS) misplaced millions of business and individual tax records. It is not clear whether the records were stolen, misplaced, or just lost.

The U.S. Code requires that the IRS create backups of business and individual tax records. The purported reason for this is to ensure that the records “are available to conduct business, document IRS activities adequately, and protect the interests of the Federal Government and the American taxpayers.” This means the IRS, in order to protect your interests—and theirs—creates backup copies of sensitive returns and statements. According to the Treasury Inspector General for Tax Administration (TIGTA), the IRS uses microfilm cartridges to store this information.

As part of its assessment process, TIGTA took a close look at the physical storage of the microfilm backup cartridges. In speaking with responsible parties at the three U.S. Tax Processing Centers, located in Austin, Texas, Ogden, Utah, and Kansas City, Missouri, TIGTA learned several things, including:

• Annual inventories of facilities that store the backup cartridges have not been routinely completed. In fact, no one knows exactly when the last inventory was conducted.
• Because there is insufficient inventory control, facility officials could not quite guarantee that microfilm backup cartridges slated for storage from closed Tax Processing Centers were physically shipped. 
• In the Ogden, Utah facility, the microfilm cartridges were not in a place one might want to keep sensitive tax information that could be used for identity theft, tax fraud, or data mining. TIGTA notes the cartridges were on an open shelf in the middle of a large warehouse, accessible to all file personnel, and without the supervision of those in charge of the microfilm storage process. In its report, TIGTA provides photographs of seven empty boxes that potentially held 168 (with about 2000 images per) cartridges sent for processing in 2013. The microfilm vendor went out of business in 2018, so it is anyone’s guess where those cartridges—and those images—ended up.
• In the Kansas City, MO facility, fiscal year 2010 microfilm cartridges were shipped from Fresno to Kansas City, when the Fresno facility closed. Unfortunately, an inventory of the Kansas City facility did not include any of the cartridges supposedly shipped from Fresno. And one more thing—while the IRS sets microfilm destruction “time frames,” TIGTA found that all three storage facilities were out of compliance and retained records in excess of the 30-year requirement.

Following its evaluation of the storage process, TIGTA stated that “significant deficiencies exist in the IRS’s accounting for microfilm backup cartridges.” These “deficiencies result in the inability of the IRS to account for thousands of microfilm cartridges containing millions of sensitive business and individual tax account records.”

Fell off a truck? Or fell into the hands of a bad actor? We will probably never know.

Talk with our tax attorneys today if you received an IRS audit letter or are concerned about a criminal tax charge

Serving local and international clients from offices in Chicago and Cleveland, the legal team at Robert J. Fedor, Esq., LLC provides experienced legal defense on matters of tax litigation, tax crime, or IRS audits. Call 800-579-0997 or contact us online today.