IRS Tentacles Extend to Electronic Records

If you think IRS’ longstanding audit techniques have been intrusive, get ready for the era of IRS Chief Counsel Advice 201146017 (link goes to PDF file).

The Counsel comments on a number of issues related to IRS’ ability to summon a taxpayer’s original electronic data files or backup files to obtain information including who, when, and how the information was created.

Recall that IRS has always been empowered to examine books, papers, records and other data for purposes of ascertaining the correctness of any return, making a return if none has been made, determining the tax liability of any person, and collecting that liability.

In this electronic age, however, it seems IRS existing authority isn’t perceived as broad enough.  The CCA guidance stands for the proposition that the phrase “books, papers, records, and other data” expressed in IRC Section 7602 was more than broad enough to encompass the compelled production of the electronic documents themselves.  And a taxpayer’s offer to provide paper copies may be construed as insufficient from IRS’ point of view.

Further, the CCA believes it can similarly summon such data from a third party, such as the taxpayer’s accountant.

Big Brother never stops watching.