By Phil Karter
In a recent TaxBlawg post, my colleague Jonathan Prokup discussed the IRS’ intention to begin requesting electronic files as part of taxpayer examinations so that it can analyze the “metadata” contained in those files. One of the concerns raised in the post, as announced in Chief Counsel Advice 201146017, was the possibility that such data in the hands of the IRS may be insecure and therefore potentially susceptible to theft by third-party hackers (which, by the way, could conceivably expose the IRS to damages for disclosure of taxpayer information under IRC § 6103). Concerns about metadata security, as highlighted in the post, are but one of a number of provocative issues arising from the explosive growth in electronic data (commonly referred to as “electronically stored information” or “ESI” in the parlance of the Federal Rules of Civil Procedure). Aldous Huxley’s Brave New Worldis upon us, and if your legal and IT departments are not already addressing these issues, tax executives should not be deterred from doing so. Among the issues implicated
- Does your company have a comprehensive records retention policy in place and, even assuming that it does, can the company adequately prove its compliance with such policies if ever challenged?
- Is that policy consistent with the requirements of IRC § 6001 and Treas. Reg. § 1.6001-1 to maintain and retain books and records “so long as the contents thereof may become material in the administration of any internal revenue law.” See Reg. § 1.6001-1(e).
- Should your company attempt to negotiate a records retention limitation agreement with the IRS?
- As part of its records retention policy, can and should your company institute a corporate policy of routine metadata scrubbing for certain types of corporate documents, and would such a policy be consistent with the requirements of Sarbanes-Oxley? (more…)