Why Metadata Matters When Working with the IRS

When I first started working at Meadows Collier many years ago, I was amazed at how some of my long-practicing colleagues could not use Westlaw and or Lexis for research. How could they not understand how to use the latest and greatest technology to make the practice of law more efficient and faster? Now I am that long-practicing attorney and using the latest and greatest tools is not easy, but I am working hard not to fall behind. The U.S. Tax Court in Lamstall Holdings, LLC v. Commissioner T.C. Nos. 12448-20 & 13268-20 recently reminded tax practitioners that staying current on technology or having someone on the team who is can be very very important.

The trial in Lamstall occurred in late 2023 and early 2024 and during the trial, the IRS moved to admit a thumb drive that contained a folder with 12 documents. The court admitted the thumb drive but a dispute subsequently arose regarding the scope of the ruling to admit the thumb drive and the IRS filed a motion to clarify what the admission of the thumb drive included. The IRS argued that the court had admitted the folder on the thumb drive, the 12 documents contained in the folder and the associated metadata for each of the 12 documents. To support its penalty proposal, the IRS wanted to use the metadata to prove that an employee of a company owned by one of the petitioners drafted a critical letter but was not listed as the author on any other critical documents. The taxpayers argued that only the physical thumb drive and the documents on the thumb drive were admitted, not the metadata.

To understand why the metadata is such a big deal, it helps to understand a few things. First, essentially, metadata is “data about data.” In electronic files (like Word docs, Excel spreadsheets, PowerPoints), metadata can include who created the file, when it was created, when it was last modified, and even sometimes what software was used. Second, in any IRS examination or tax litigation, metadata can help reconstruct timelines, show whether a document was backdated, or reveal inconsistencies between what a party claims and what their digital footprint shows. Third, though metadata can be powerful, courts are often cautious. Parties must typically lay a foundation by showing how the metadata was preserved, that it hasn’t been tampered with, and that it’s relevant. There's also the risk of “spoliation” arguments if a party claims metadata was altered or destroyed. Lastly, when the IRS (or any party) tries to introduce documents, they often prefer native-format (original Word, Excel) rather than flat PDFs, because native formats retain the richer metadata.

Ultimately, the Lamstall court declined to admit the metadata into evidence which shows a reluctance (at least in this case) to let such metadata in, or perhaps that the IRS didn’t meet some threshold for admissibility. However, the court’s refusal to admit the metadata does not necessarily mean metadata is inadmissible. Each case is fact-specific: how the data was preserved, how it was produced, and how it was authenticated all matter. For taxpayers, this is a win in the short-run (metadata excluded), but not a guarantee for future cases.

There are a number of takeaways for tax professionals, attorneys, and even corporate taxpayers regarding metadata. First, during an IRS examination, the IRS exam team’s requests for documents will include the associated meta data. Second, save native files (Word, Excel) in addition to PDFs, particularly for documents that might later be subject to IRS audit or litigation. Third, have clear document retention policies about how electronic records are stored, backed up, and archived. This includes preserving metadata when appropriate. Consider “forensic snapshots” of data (e.g., take hash-coded backups) if you anticipate IRS examinations or other litigation. Fourth, be ready to challenge or defend the admissibility of metadata. Work with forensic experts who can testify about the chain of custody, integrity, and reliability of electronic records, if necessary. Finally, tax professionals, CFOs, financial teams and business owners should be educated on the risks and power of metadata. It’s not just “technical stuff”: metadata can swing a case. Keep in mind that beyond defending, metadata can be used affirmatively to support a tax position (if consistent with your narrative).

For questions regarding this blog post or any other civil or criminal tax related matter, please feel free to contact me at jcrouch@meadowscollier.com.