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The IRS and Social Media

Posted on April 16, 2013 in Firm News,IRS,tax planning

The IRS indicated as early as December of last year that it would begin in January to examine connections between social networking accounts for actionable tax violations. As this strategy gains wider recognition, new and challenging issues have begun to arise. It has said that it will only monitor accounts if a tax form raises a red flag, but it is unclear to what extent that monitoring will be. It remains untested how thoroughly it can examine social media accounts.

The technique follows the pattern set my social media marketing, through data mining and conducting widespread searches for certain keywords, often potentially taking advantage of “loopholes” in Facebook privacy settings. Because that is more the exception in the rule, the IRS is generally limited to publicly divulged information.

The precedent has been set for using social media to secure indictments in recent East Harlem gang activity, and until now, most concerns regarding the government’s surveillance of social media have been limited to the Department of Homeland Security and the FBI. However, the IRS has quietly followed their wake into the social media investigations.

For example, the IRS can use the geographical tagging that is connected to Facebook and Twitter posts and photos as evidence of an individual’s travels and examine their content to ascertain the primary purpose of those travels, thus determining the deductibility of those related expenses.

Also, it has indicated that that there is a higher likelihood that an individual with an overseas bank account is connected on social media to another individual with a foreign bank account. If an individual with an unreported account is discovered through the recently expanded disclosures by formerly private banks, then the IRS will likely examine those social media connections for others likely to have undisclosed foreign accounts.

Private government contractors have been working diligently towards the development of software to identify individuals that meet certain criteria (such as security threats, in the case of the Department of Homeland Security), which technology is closer to being appropriated by the IRS to perform similar tasks in pursuit of the more efficient collection of revenue.

These government agencies have said that they are in the process of developing guidelines for how to gather information from social media while still protecting privacy, but make no mistake that such monitoring is now fair game.