The IRS Misplaced Millions of Taxpayer Records. Again.

Do you know where your tax records are? It's a serious question in the case of millions of Americans whose records the IRS carelessly misplaced. That's the big reveal in a recent inspector general's report telling us that the federal mugging agency continues to be mindbogglingly incompetent at safeguarding the sensitive financial information it forcibly extracts from us all.

Millions of Records Went Missing

"The IRS was unable to locate any of the FY 2010 microfilm cartridges that should have been sent from the Fresno Tax Processing Center to the Kansas City Tax Processing Center," the U.S. Treasury Inspector General for Tax Administration revealed in an August 8 report on the tax agency's data-handling practices. "As a result of the lack of adequate inventory controls, the IRS cannot account for thousands of microfilm cartridges containing millions of sensitive business and individual tax account records."

That's bad—remarkably bad given the bait the information in those records represents for criminals inclined "to commit tax refund fraud identity theft," as the report goes on to warn. You could omit the "tax refund" part since the details we're required to submit to the IRS could enable scammers to rob us blind in a host of ways that don't matter to the government but are extremely serious to anybody on the receiving end.

As you might expect of a government agency, the incompetence doesn't stop there.

Empty Boxes and No Inventory

"Our review found that required annual inventories of microfilm cartridges maintained at the Austin, Kansas City, and Ogden Tax Processing Centers have not been performed. In fact, management could not provide a time frame of when the last required annual inventory was conducted," the report adds.

That means there could be many more records missing. Might that be thousands of microfilm cartridges containing millions of sensitive tax records? Nobody knows; without an inventory it's all just an intriguing mystery. But there's certainly evidence of other missing tax records.

At the Ogden, Utah, tax processing center, "we observed seven empty boxes with a note stating, 'Sent for Reformat 4-11-13.' Each box holds 24 cartridges meaning as many as 168 cartridges may have been sent for reformatting. IRS personnel in Ogden were unaware of the current location of these cartridges."

The IRS should probably reach out to the folks they sent the microfilm for reprocessing (each microfilm cartridge can hold up to 2,000 images), but there's a hitch. "Because the prior microfilm contractor went out of business abruptly in 2018, it is unclear where these microfilm cartridges are located at this time."

Storage unit? Uncle Bob's garage? A site on the dark web for sale at very reasonable prices? Your guess is as good as that of anybody at the IRS—not that they're in a hurry to find out.

This would be bad enough if the report and the lapses it found stood on their own. We'd know that IRS processing centers serve an important function as one-stop-shopping outlets for identity thieves. But this is just the latest in a long series of revelations that the tax agency is unforgivably sloppy in the handling of Americans' sensitive financial information.

A History of Incompetence and Malice

In 2021, ProPublica published leaked tax information about thousands of wealthy individuals. The disclosures are still under investigation and the subject of lawsuits against the publication and the IRS.

It's not just the wealthy; last year the Government Accountability Office revealed that IRS employees are constantly engaged in "willful unauthorized access of tax data." Some of that tax data poaching is carried out by the likes of Deena Vang Lee, a tax collector who was convicted earlier this year of multiple charges, including five counts of identity theft.

But IRS tax records are also easy pickings for criminals not employed by the federal government, such as the gang that stole taxpayers' information through the tax agency's website in 2015. Originally reported as affecting 100,000 Americans, the IRS later had to up estimates of the number of people at risk to over 300,000 before hiking it again to more than 700,000.

You'd think the agency would learn. But later it carelessly posted the financial information of roughly 120,000 taxpayers to its website for all to see.

By comparison to the earlier incidents, the IRS microfilm fiasco does raise the ante just a tad since it involves millions of tax records. The only saving grace is the possibility that they've been lost to bureaucratic incompetence rather than explicit malice and may someday be found in a dank government facility slowly rotting next to the crate containing the Ark of the Covenant.

Recommended Reforms That Won't Reform

The inspector general's report contains recommendations for reform, specifically that IRS employees should actually conduct required inventories of the tax records in their care and then report discrepancies so that somebody can hunt down missing boxes of microfilm. The report also recommends tracking requests for records, the reasons for the requests, and whether or not they could be fulfilled. Sounds reasonable, right? Even the IRS agrees.

"We are taking action on the report recommendations to complete inventories of the microfilm media stored at the [submission processing centers] and updating procedures to ensure the inventory records are contemporaneously maintained and reviewed annually," Kenneth C. Corbin, commissioner for the Wage and Investment Division, responds in an appendix to the report. But he also blames the slips on the "attrition of experienced staff due to reduced funding" and "the effects of the recent pandemic."

Right. After years of recommending various and sundry means for rendering the IRS less of a disaster, staffers for the Treasury Inspector General for Tax Administration must realize that, whether or not recommended reforms are implemented, the agency remains steadfastly impervious to improvement. Without real consequences, there's no reason for the tax agency's management to rein in its employees, to stop functioning as political enforcers, to figure out why their processes are so opaque to taxpayers, or to exercise even a modicum of care for information with which they're entrusted.

Given the tax agency's history, its recent $80 billion funding boost will just be used to find new and wildly more expensive ways for making Americans' lives miserable.

Not that most intelligent people need more reason to try to stay off tax collectors' radar. But the knowledge that any sensitive information surrendered to the IRS is likely to be lost or otherwise made available for public perusal is a strong argument for shielding hard-earned income and personal financial data from the government's tax goons.