A watchdog review of how the Internal Revenue Service (IRS) stores old tax records contains the embarrassing finding that the tax agency has lost track of thousands of microfilm cartridges containing millions of sensitive business and individual tax records of Americans.
The report, issued on Aug. 8 by the Treasury Inspector General for Tax Administration (TIGTA), blamed the IRS for being sloppy in the way it handles sensitive taxpayer information that could be used by criminals to commit identify theft and tax fraud.
“The IRS is not in compliance with records management requirements,” the report states.
It points to “significant deficiencies” in the way the IRS safeguards, stores, and accounts for microfilm cartridges that are used to backup and store photographic records of sensitive business and individual tax information.
Millions of Missing Tax Records
The problem with the IRS’s mishandling of sensitive taxpayer records is pervasive and long-lasting, according to the watchdog.For instance, the IRS has not been in compliance with records management requirements, the watchdog said, noting that 15 large pallets containing microfilm cartridges with sensitive taxpayer data have been sitting at the IRS’s national distribution center since 2018.
While IRS management said that there were efforts underway to ship these to the Federal Records Center, the IRS had, as of April 2023, still not secured a contract to have the cartridges sent.
The IRS has also been non-compliant with microfilm destruction timeframes. The watchdog found individual cartridges stored at all three IRS tax processing centers—in Austin, Texas; Kansas City, Missouri; and Ogden, Utah—that exceeded the 30-year storage requirement.
The watchdog also found that the IRS had no process in place to dispose of microfilm backup cartridges in a timely way.
Further, required annual inventories at all three tax-processing centers were not performed. In fact, IRS managers at the facilities were unable to even say when the last mandatory inventory was carried out, the watchdog said.
A related problem was that inadequate inventory controls of the microfilm cartridges meant that the IRS was unable to accurately track cartridges that were physically sent out from tax processing centers.
‘Unaware of the Current Location’
At the Ogden facility, the IRS lost track of as many as 168 microfilm cartridges containing up to 2,000 photographic images each that were supposed to have been held in seven boxes that the watchdog discovered were empty.“IRS personnel in Ogden were unaware of the current location of these cartridges. Because the prior microfilm contractor went out of business abruptly in 2018, it is unclear where these microfilm cartridges are located at this time,” the report reads.
Also, the sensitive records stored at the Ogden facility were inadequately safeguarded, the watchdog found.
“Specifically, the microfilm cartridges are being stored on open shelving in the middle of the Files building, a large warehouse,” the report states, noting that the warehouse is widely accessible to Files Function staff within the facility and the shelving is not within eyesight of IRS personnel responsible for overseeing the microfilm cartridges.
The IRS disputed the finding that the Ogden facility safeguards were inadequate. In a response to the report, IRS management said that the site is restricted, with controlled access to the building with on-site, armed security.
“Further, access to the facility is limited to employees assigned to the Files Function who have undergone background investigations and are trained on the handling and protection of sensitive taxpayer information or documents,” IRS management stated.
The watchdog said in response that it agrees with the IRS that the Ogden facility building has controlled access, but it stood by its recommendation that the IRS should take additional precautions to limit access to the large volume of tax information only to those employees working with the microfilm.
As regards missing records, their number was even more shocking at the Kansas City facility, which was unable to account for a whopping 9,500 microfilm cartridges containing business tax account information.
With up to 2,000 photographic images per cartridge, that puts the potential number of missing images of sensitive business tax account information at 19 million.
In light of the startling findings, the watchdog recommended that the IRS carry out a detailed inventory of all microfilm cartridges on hand, including microfilm disposed of or missing.
IRS management agreed to do so by Oct. 15, 2023, pledging to also include a full reconciliation matching microfilm logs provided by vendors with physical microfilm cartridges.
Overall, the watchdog made 13 recommendations, including ensuring that microfilm cartridges are properly stored and preserved.
Mr. Corbin wrote in a letter responding to the watchdog report that the IRS was forced by a lack of money to redirect employees responsible for tracking microfilm cartridge inventories to higher priorities.
“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 updating inventory records of the microfilm cartridges on hand” at the processing centers, Mr. Corbin wrote.He said the IRS continues to work through shipments of tax records to processing centers and that officials are “confident that as the backlog of non-tax documents is processed, the remaining cartridges will be incorporated.”
Mr. Corbin added that the IRS is working to phase out microfilm storage entirely in favor of digital record keeping.
