Taxpayer Information Naked in the Clouds

The complexity of America's tax laws have provided a significant livelihood for the tax practitioner community.  The Internal Revenue Service is well aware of this, and strives to maintain productive relationships with the practitioners.

Tax practitioners, be they tax return preparers, CPAs, or attorneys, have effectively become a part of the taxation system, and should be viewed as such, notwithstanding what should be their zealous advocacy of the legitimate good-faith taxpayer.

Now the news of a massive hacking and publicizing of certain female celebrities' nude photographs is making the rounds in America and abroad. Though seemingly unconnected with the business of filing and auditing tax returns, this is a concern that should be given serious regard by the IRS, the tax practitioner community, and indeed, the ordinary individual taxpayer.

The hot nude photos in question were hacked from Apple's iCloud, a database that touts its convenience of access for large data stored in a remote accessible location. And Apple does not have a monopoly on "cloud" storage; other entrepreneurs purvey their own clouds to the public, and some enterprises maintain their own private clouds for their own workforce and/or subscribership.

Whatever difficulty and dysfunction the IRS has had with maintaining and controlling the security of its own database and the actions of its own employees must necessarily pale in comparison to the challenge of control it could ever wield over taxpayer data in the hands of the practitioner community. Misbehaving tax return preparers are problem enough, but what of the good faith tax return preparer whose data stored in a cloud facility gets hacked?  Suppose the tax return preparer is a large, multi-office concern, i.e., one for whom the prospect of cloud storage might be especially appealing from the logistical standpoint of making data accessible to geographically-dispersed offices? The greater the number of clients, the more appealing the prospects of cloud storage can be.

Tax return preparers keep backup data and documents that contain even more personal and financial information than is reported on the tax returns filed with the IRS. Such backup items might include bank and brokerage account numbers, credit card statements, and now, with ObamaCare having been made an integral part of the tax system, health, and medical information.

National Taxpayer Advocate Nina Olson, are you listening?

Kenneth H. Ryesky is a lawyer who teaches business law and taxation at Queens College CUNY.  He formerly served as an attorney for the IRS.