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Smartphone Apps Raise New Ethical Issues on Client Data Security

Posted on May 16, 2022

Tax professionals need to carefully examine what they do with their smartphones and how they use social media programs to ensure that they don’t accidentally disclose confidential client data.

It might not take a John Doe summons to identify taxpayers seeking a certain kind of legal help if specialty lawyers carelessly allow a social media app access to client contacts on their phones, according to government officials and tax attorneys speaking at the May 13 American Bar Association Section of Taxation meeting.

Tax professionals have a duty of competency, and 40 states have extended that duty to include technological competency, according to Timothy McCormally of the IRS Office of Professional Responsibility. “Currently, there is not a direct linkage in the language of Circular 230 that says competence means [technological] competence, but I think we are comfortable within OPR of saying, ‘Given the trend line of the ABA and others . . . that you should know what’s going on,’” he said.

McCormally was addressing the ethical issues raised when a lawyer or other professional allows a smartphone app access to his or her contacts list and that list includes clients. For example, a lawyer could be a divorce specialist, and clients might not have disclosed a divorce interest to friends and family, meaning simply being revealed as a client discloses information about legal advice, he said.

A lawyer might have notes on contact entries — perhaps labeling someone a “tax fraudster” — that would also reveal confidential client information, McCormally said.

Emily Lesniak of the IRS Office of Associate Chief Counsel (Procedure and Administration) said that disclosure to a program that will allow computer algorithms to use the information but won’t allow humans to examine it may be more permissible because it’s less likely to breach a confidence, she said, referring to a New York State Bar ethics letter.

Matthew Cooper of Deloitte Tax LLP raised the possibility of the Transportation Security Administration examining a phone while a professional is traveling. The whole issue of confidentiality can be even more significant for tax return preparers because they can face tax penalties or even criminal prosecution for revealing taxpayer data, he added.

Aaron Esman of the Moore Tax Law Group LLC noted the importance of using password protection on phones with client data that include contact information.

Esman asked about clients connecting with tax professionals on LinkedIn, allowing the whole world to see a connection to someone with lots of contacts in the criminal tax defense world.

At the very least, that client has probably tacitly consented to that disclosure, according to Lesniak.

Business or Pleasure

Esman asked whether professionals will analyze professional social networks like LinkedIn differently from more social programs like TikTok.

McCormally said professionals still need to ask themselves who will be able to look at the data they allow access to and what will be done with that information. Professional apps may at least promise more protections and safer algorithms than other programs, increasing comfort levels, he said.

The same analysis applies to professional apps, but professionals may more often determine that sharing with those programs is permissible, Lesniak said. Professional apps may be less likely to have a vulnerability, she said.

However, “just because you can, doesn’t mean you should,” McCormally added.

Both Cooper and Lesniak noted that many of these issues are exactly why they have two phones.

“It’s definitely going to be safer. You’re not going to have to wrestle with these questions or be concerned about what an app on your phone may be accessing if you’re not putting any client information on it,” Lesniak said. Operating with two phones — one for apps and the other for client contact information — is an easy way to comply with the ABA model rules and other ethical requirements, she said, adding that it eliminates the potential risks.

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