Your Data Security Plan When You Add an AI Tool

A new AI tool is a new place client data can go. Record the Firm's decisions about the new account and who may use it.

The IRS tax tip quoted under the sign-off section lists this among its required items: "Change the security program as needed. This should happen if any part is outdated, or when employees leave or join the company." How that applies to adding a tool, and when the edit is due, is for the Firm's counsel or compliance lead to confirm. Name who will record later changes.

This post is for whoever keeps the plan. Each edit pairs a change with the entry to record. The IRS tax tip quoted under the sign-off section lists some items as required, including two about service providers; how those apply to the Firm and the new tool is for the Firm's counsel or compliance lead to confirm. The other choices here are the Firm's. Any edit touching the Safeguards Rule goes to the Firm's counsel or compliance lead for confirmation before it enters the plan.

Add the tool to the systems list

What to change. The plan's list of systems that hold or touch client data gets a line for the new tool. Name the account type too, so the plan shows exactly which sign-up the Firm approved. Read the vendor's current terms for the account being approved. The account-type comparison shows which term details to record for the approved account. The tax tip's service-provider items, quoted under the sign-off section, are among the questions to take to counsel here.

What to write down. The tool and account type, who administers it, when the Firm last read the terms, and where the filed copy sits. Record whether the Firm permits personal accounts of the tool and which accounts it approves for client data.

Decide what client data goes in

What to change. Add a section on what client data may enter this tool and in what form. Take each type the Firm handles, from identification numbers to call notes. For each, the Firm decides whether it goes in at all, and if so, as a masked copy or the original.

If the Firm chooses to test the tool before client data goes in, one way is to run it on a synthetic Doe client file whose correct output someone already worked out by hand, using the instructions staff get. Mark each wrong, missing, or extra line, adjust the instructions, and rerun until nothing is off or the task stays manual. This walk-through of where AI output goes wrong in tax prep lists what to look for.

A clean test doesn't replace review. The Firm decides which tasks it relies on the tool for, and the Reviewer concludes and signs off on the workpaper. What the Reviewer does has more on that role.

What to write down. A table of data type, allowed or not, and form. Under it, the identifiers that never go into this tool, spelled out. Then the masking steps: which fields get blanked, by whom, and where the masked copy is saved. Add the test results and where they're filed. Last, whom staff tell when barred data goes in anyway; the incident steps below cover the rest.

Access and offboarding

What to change. Who can log into the account, at what permission level, and what happens to that access when someone leaves or changes roles. Record the Firm's decisions on individual or shared access, who adds and removes users, and when access ends after a departure.

What to write down. Record the Firm's chosen access roles, permission levels, administrator, and departure steps, including its decisions about user removal, shared credentials, and saved drafts. Record those steps in the Firm's existing departure checklist. If there is no checklist, have the Firm choose where to record them.

Outputs, drafts, and how long they're kept

What to change. Where outputs and drafts end up, and for how long. Have the Firm record what the selected account's current terms and inspected settings say about chat and file history. Decide whether that history counts as part of the Firm's record, or whether staff copy what matters into Firm storage and treat the history as scratch. The Firm picks its retention periods, with input from counsel or the compliance lead.

What to write down. Record the Firm's chosen output folder, naming convention, person responsible for saving outputs, retention period, and whether it chooses to use any history controls available for that account. If a setting controls history, record its value and who checks it.

If the tool or account is exposed

What to change. Name the new tool in the plan's incident steps. Think through likely events: a leaked password, a lost laptop with an open session, a problem the vendor reports, data uploaded that the table didn't allow. For each, decide who inside the Firm is told and what gets shut off, in what order.

What to write down. A contact person and a backup. Record the response actions the Firm chooses, who may take them, and who may authorize resuming use; have the administrator document the controls actually available for the selected account. Where the Firm records what happened. Questions about notice outside the Firm go to counsel or the compliance lead, so write down how to reach them.

Tell staff what changed

What to change. How staff learn about the edit: a short meeting, a written note, a walk-through of the masking steps, or a mix. Decide whether staff confirm in writing that they've read it.

What to write down. When and how staff were told, where the materials are filed, and who caught up later. Add the change to the plan's training notes for new hires. If the Firm keeps a separate AI use policy, note where the two documents point to each other.

Sign-off on the edit

An IRS tax tip on data security plans, Tax Tip 2019-174 dated December 11, 2019 (as read on October 16, 2026), points preparers to Publication 4557, Safeguarding Taxpayer Data, and lists this among the things that publication helps preparers to do: "Follow the Federal Trade Commission's Safeguards Rule." The same tax tip lists eight items under the line "These items are required when writing and following a data security plan:". Among the eight: "Pick one or more employees to coordinate the information security program." "Select service providers that can maintain proper safety measures." "Make sure the contract requires the provider to maintain safety measures and oversees their handling of customer information." "Change the security program as needed. This should happen if any part is outdated, or when employees leave or join the company." Past those quotes, this post doesn't describe the Rule or the tip's other items, and it doesn't check whether the tip or the publication has been updated since. Ask the Firm's own counsel or compliance lead how it applies to the Firm and the new tool.

What to change. Decide who signs off on this edit before the tool goes into use. One approach: the employees the Firm picked to coordinate the information security program sign the edit, and the Firm's counsel or compliance lead confirms it in writing.

What to write down. A dated line under the edit with the coordinators' sign-off and counsel's or the compliance lead's confirmation, plus a change-log entry. The Firm decides where that confirmation is filed.

A Doe example

Doe & Co. CPA, a fictional firm, is adding one drafting tool. Sam Doe owns it and coordinates its plan; Alex Doe is its Reviewer. Its entries:

These are Doe & Co. CPA's choices, not a legal standard.

The one-screen checklist

1. Add the tool and the approved account to the systems list; read and file the current terms.
2. Decide whether to test the tool on a synthetic Doe file before any client data goes in.
3. Build the data table, the never-in list, and the masking steps.
4. List access by role and put removal on the departure checklist.
5. Record the Firm's choices for output storage and retention, and whether it uses any history controls available for the selected account.
6. Add the tool to the incident steps: who's told, what's shut off.
7. Tell staff and file what they were told.
8. One approach the Firm can choose: coordinators sign the edit, and the Firm's counsel or compliance lead confirms it in writing.

Where TracePrep fits

TracePrep is tax-prep software for CPA and EA firms. We've built a tax-prep plugin that drafts prep work in your Firm's workflow. The plugin drafts; the Firm's preparer prepares; the Reviewer signs off. Access to the plugin is by waitlist.

Not tax advice.

This is general information, not tax or legal advice. Your licensed professional and your Firm's Reviewer are responsible for every return and every conclusion. Keep client data inside the systems your Firm has approved. As general guidance only, not advice: if you use an AI tool with client data, firms generally look for a business or commercial plan whose terms cover how that data is handled; read the vendor's current terms before you do.

Join the waitlist