Brand New IRS, Same Old Leaks

The Internal Revenue Service is still feeling like new after its $80 billion makeover, and lately it’s been telling the world how it’s cleaned itself up. That makes it an inconvenient time to learn that the agency lost millions of tax records. Yes, again.

A Treasury Department inspector general describes the latest leak in a report Tuesday. During visits to IRS offices in August and October 2022, investigators discovered that thousands of microfilm cartridges are unaccounted for, each of which contains tax records for up to 2,000 individuals and businesses. Missing troves include empty boxes in Ogden, Utah, and others that were shipped to a Kansas City office but seem to have never been filed.

The IRS can’t say for sure how long they’ve been missing. Managers admitted that they had skipped yearly inventories of the microfilm records, and they “could not provide a time frame of when the last required annual inventory was conducted.” Investigators say the missing records, which cover the 2010, 2018 and 2019 tax years, can be used for tax-refund fraud.

The report upsets the Biden Administration’s media campaign to refurbish the agency’s reputation. Commissioner Danny Werfel published a 150-page strategic plan in April that promised a “world-class service experience.” Last week he joined Treasury Secretary Janet Yellen to tout the agency’s progress on modernizing its records. “The bottom line is, an IRS after the Inflation Reduction Act is a very different IRS than before,” Mr. Werfel said. Look any different to you?

The Administration says IRS reform is only beginning, since it’s been less than a year since the new funding passed. But despite Mr. Werfel’s big announcement, modernization and security are low on the agency’s priority list. Only $12 billion of supplemental funding will go to upgrade technology, compared with $46 billion to hire thousands of new agents to audit more taxpayers.

The leak revealed this week is the latest entry in the IRS’s docket of unsolved mysteries. The agency admitted last September that it had accidentally published 120,000 private tax files, probably as a result of faulty software. In 2021 the left-wing ProPublica website published the private tax returns of prominent and wealthy Americans, and the IRS has yet to identify the source of the leak.

House Republicans secured an agreement to repurpose up to $21 billion of future IRS enforcement funds during the June debt-ceiling fight. The threat of cuts should warn the agency to get its leaky house in order before focusing on growing its audit program.