The US Internal Revenue Service is unable to locate thousands of microfilm cartridges storing millions of sensitive business and individual tax account records, a new investigation has found.

The IRS is required to create and store microfilm backups of both business and individual tax records and keep them for 75 years and 30 years respectively before destroying them.

Documentation obtained from the IRS’s Office of Information Technology show an average of 42 million business tax records were stored on microfilm in Fiscal Years (FY) 2021 and 2022 with an average of 190 million individual tax records stored during this same period.

A review by the US Treasury Inspector General For Tax Administration has “identified significant deficiencies in the IRS’s safeguarding, accounting for, and physical storage of its microfilm backup cartridges.

“For example, our physical inspection found empty boxes labeled as including microfilm backup cartridges with no explanation as to the location of the missing cartridges. In addition, our discussions with responsible officials at the current three Tax Processing Centers that house microfilm backup cartridges identified that required annual inventories have not been performed.

The lack of adequate inventory controls also includes no reconciliation of the microfilm backup cartridges noted as being sent from closed Tax Processing Centers to what was physically shipped and received.

“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. The personal taxpayer and tax information included on these backup cartridges is key information that can be used to commit tax refund fraud identity theft.”

The report also found the IRS is not in compliance with records management requirements nor is it in compliance with microfilm destruction time frames.

Ken Corbin, the agency’s wage and investment commissioner, respondedc that the report highlights the challenges the IRS has experienced over the last decade due to reduced funding and the attrition of experienced staff. As a result, the agency has had to shift workers to high-priority tasks and this affected its ability to update microfilm inventory records in a timely manner.

The IRS’s budget fell by more than 15% in the decade leading up to 2022, leading to a decrease in both staffing levels and audit rates.

But the agency finally got the additional funding its officials had long been asking for when the Democrats’ Inflation Reduction Act passed last August.

While the report notes that the IRS is slowly phasing out its use of such microfilm records, it is likely that their secure storage will remain an ongoing challenge for the IRS for years to come. As such, the report urges IRS officials to address these shortcomings with urgency and to ensure that microfilm records remain an asset for the agency and not a liability.