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Mellon Bank Tax Return Snafu Bigger Than Thought, Tax Chairman Says

Employees at an IRS processing center run by Mellon Bank may have hidden or destroyed more tax returns and payments than originally thought, according to recent figures received by the Senate Finance Committee.

Sen. Max Baucus, D-Mont., the finance chairman, said the center may have mishandled as many as 71,257 returns worth $1.2 billion, about 31,000 more than first believed.

Mellon Bank, which operated the facility until August, earlier disclosed that employees there hid or destroyed about 40,000 tax returns and checks worth at least $810 million because they were unable to keep up with the workload. Authorities said that amount could grow as the investigation continues.

A grand jury began investigating after IRS officials received calls in May from people whose tax payments checks had not cleared.

The problem affected only filers in Northeastern states who owed money on their 2000 tax returns and mailed them to Pittsburgh.

Mellon lost its contract to run the center because of what bank chairman Martin McGuinn called "gross disregard" and the failure by employees to follow company policy.

Taxpayers affected by the mishandled returns were not penalized by the IRS and the agency has spent about $2 million righting ensuing problems.