Workers at an IRS processing center run by Mellon Bank hid thousands of tax returns or put them with papers to be shredded apparently because they thought they had fallen behind, a top Mellon official said.
At least 40,000 federal tax returns and payments totaling $810 million were either lost or destroyed at the Pittsburgh center, which handled returns and payments sent by taxpayers in New England and parts of New York state.
Earlier this month, Mellon lost its contract to run the Pittsburgh IRS Processing Unit because of what bank chairman Martin G. McGuinn called "gross disregard" and some employees' failure to follow company policy.
The employees, who were immediately fired, apparently disposed of the records "because they felt they were behind in their work," McGuinn said in an internal memo issued Tuesday.
The center was set up to handle 1.7 million tax returns during the April rush.
Mellon spokesman Ron Gruendl declined to go into specifics about any backlogs at the center or how or where the documents were hidden.
"The statement stands on its own," Gruendl said.
Loss of Mellon's contract to run the center resulted in layoffs or transfers of 106 other employees.
Mellon Bank officials repeated that it does not appear to be a case of identity theft, stolen checks or disclosure of sensitive taxpayer information.
A federal investigation was started after taxpayers complained to the IRS that their payment checks had failed to clear. Sen. Charles Schumer, D-N.Y., said last week the agency had received 22,000 complaints of uncashed checks.
The IRS set up a special unit to handle the cases, and told taxpayers who suspect they may be affected to stop payment on uncashed checks and to send a new return and check to another IRS service center in Andover, Mass.
Mellon began processing tax returns and payments for the IRS in 1993.
In 1985, the IRS discovered tax returns turning up in trash cans and women's restrooms and thousands of mutilated refund checks at the agency's Philadelphia Service Center. Officials blamed the problems on costly computer problems and worker turnover at the center.
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