US Treasury Watchdog Exposes Flaws In IRS Personal Data Security

by Leroy Baker, Tax-News.com, New York

27 May 2009

The Internal Revenue Service (IRS) needs to do a better job of ensuring that sensitive personal and financial information provided by more than 130 million taxpayers is adequately protected from identity theft, according to a report by the Treasury Inspector General for Tax Administration (TIGTA).

The report concluded that the IRS needs to improve its oversight of contractors collecting, disposing and destroying paper documents containing ‘sensitive but unclassified’ (SBU) information.

According to the report, regional IRS officials did not regularly visit contractors to verify that SBU trash was being properly destroyed, nor did they consistently verify that contract employees - who have access to SBU documents - had passed background checks.

While the IRS has educated its workforce on the need to protect electronic information from disclosure, the report found that IRS employees are improperly disposing of taxpayer information and other sensitive documents. At every IRS facility visited, SBU documents were found in regular waste containers and dumpsters.

The TIGTA warned that the disclosure of taxpayer information or other personally identifiable information (PII) could result in identity theft, which has been identified by the Federal Trade Commission as the nation’s top consumer complaint.

"Taxpayers need to be assured that the IRS is taking every precaution to protect their private information from inadvertent disclosure," commented J. Russell George, the Treasury Inspector General for Tax Administration.

TIGTA made five recommendations to the IRS to improve oversight of the destruction of SBU documents, including, providing national oversight over SBU waste disposal contracts and provide additional education to IRS employees about the need to properly protect information containing taxpayer information or other PII.

In its response to a draft of the report, the IRS stated that it had improved oversight over SBU/PII waste disposal contracts by developing standard operating procedures for IRS contract managers to follow in monitoring contracts, including increased verification that disposal company employees have passed background checks. The IRS is educating its employees regarding the importance of protecting electronic and paper documents containing sensitive information, TIGTA said.

"While this report’s findings are troubling, I am encouraged that the IRS management is increasing its oversight over the disposal of sensitive documents and educating its employees about the need to protect taxpayer information from loss and potential misuse," George added.

The Treasury Inspector General for Tax Administration organization was established in January 1999, in accordance with the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 to provide independent oversight of IRS activities.

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