The IRS has determined that the tax returns and related payments of at least 40,000 taxpayers may be missing. Affected taxpayers are primarily located in the Northeast United States and would have sent their returns to an IRS lockbox address in Pittsburgh, Pennsylvania. An earlier report indicated that approximately 1,800 taxpayers were affected.

The General Accounting Office (GAO), the U.S. watchdog agency for other federal agencies, had warned of potential problems with the lockbox system years before the problem surfaced. A GAO report from August 1999 instructed the Treasury Department Financial Management Service (FMS) to improve on its system of monitoring the lockboxes.

"Without performing these key monitoring activities, FMS is not assured of timely identifying and resolving internal control weaknesses at lockbox banks. Such weaknesses increase the risk of loss of federal collections," according to the GAO report.

The GAO report also indicated that tax documents were being transported from the lockbox by unarmed couriers, and that background checks were not routinely being performed on the people handling the tax documents and checks. The report also noted that investigations performed by the IRS in 1997 and 1998 disclosed "numerous" cases of theft of federal checks.

The IRS has created a special unit that is tracking down taxpayers that were affected by the recent loss.