We handle a significant number of civil examinations as well as represent taxpayers in criminal investigations by the IRS. Recently the IRS Office of Chief Counsel issued new guidance on an IRS Examiner’s ability to summons a taxpayer to turnover electronic files containing metadata in the course of an IRS audit.
Taxpayers should be aware that the IRS seems to be expanding the range of electronic records requested during the course of an examination. The latest guidance sets forth the IRS’ position that examiners may summon metadata and a field directive issued in September instructs examiners to request accounting software backup files from taxpayers
It is our experience that many financial software programs contain audit trails, allowing the IRS in both civil and criminal investigations to view a trail of exactly what was entered into the software, when and by whom.
Metadata is a form of electronic records that describes how, when, and by whom a particular item or set of electronic information was collected, created, accessed, modified, and formatted. According to the IRS Chief Counsel’s Office, metadata is valuable in an examination because it would identify the original date a transaction was entered into the electronic records, the dates of any changes to the entries, and the username of the person who made the entries. According to the Chief Counsel’s Office, the IRS can summon metadata so long as the information falls within the broad scope of Internal Revenue Code (“IRC”) section 7602(a)(2) such that the information in the metadata “may be relevant” to a proper purpose for which the examination is being conducted.
In September 2011, the SB/SE Division of the IRS released a memorandum providing guidance to IRS examiners on the use of electronic accounting software records. The memorandum directed examiners to begin requesting electronic accounting software data from SB/SE taxpayers during the course of examinations.
Eric L. Green, Esq.
Convicer, Percy & Green, LLP
60 Long Ridge Rd., Suite 202
Stamford, CT 06902
Ph. (203) 602-5550
Fax (203) 286-1311