IRS May Be Monitoring Debtor’s Social Media Accounts

Debt collectors have been using a simple information mining tool for years: Facebook. Photos and other posts on Facebook and other social media sites including Twitter and Instagram can reveal a great deal of information about your financial condition. But how?

For instance, the simplest way of obtaining information is through photos. Photos can show the inside of your home and its furnishings, personal vehicles, personal jewelry, and expensive electronics (especially given or received as Christmas or birthday presents). Then there’s vacation and event photos that give clues to a person’s financial standing as well. Vacation photos, and posts about work or even hobbies may reveal income sources and all of this information makes it easier for collectors to locate property and income and collect on a debt.

Targeting tax cheats through social media

Now the Internal Revenue Service appears to be targeting tax cheats through social media posts (source). The business media outlet Marketplace reports that the IRS is using “tools like online activity trackers to enhance the vast cache of information it’s already privy to: your social security number, your health records, your banking transactions.” (source)

Activity trackers and data mining programs were initially developed and refined to create consumer profiles by companies like Google, Yahoo, Facebook, and AOL. Now the IRS is using these tools to cross check what you post online with information it already has about you, like your bank accounts and property holdings.

“It appears from its public statements and some other reports, that [the IRS is] using data to piece together likely profiles or likely candidates for closer review,” Behnam Dayanim, co-chair of the privacy and data practice at Paul Hastings, tells Marketplace. The IRS estimates that it loses $300 billion a year to tax evasion. Because of budget cuts, there are fewer auditing agents than at any time since the 1980s. Online activity trackers and data mining robots reduce IRS man-hours and assist agents in locating (and prosecuting) tax dodgers. In other words, if you report no income, but post pictures of your recent Aruba vacation on Facebook, the tax man may have questions for you.

So what can you do to protect yourself?

Be Careful: Whatever you post any information about yourself online, you can consider the information as fair game. The IRS now has the technical ability (and investigatory authority) to look at your online posts, no matter where the are.

As Edward Zelinsky, a professor of tax law at the Cordozo School of Law told Marketplace, “It’s hard to believe that anybody who puts anything on Facebook has any legitimate expectation of privacy.” Indeed, one recent bankruptcy court has held that the Fifth Amendment does not protect against compelling disclosure of Facebook messages and other electronic messages – even if the content of those messages could be incriminating. In re Welsh, Case No. 13-02457-8-SWH (Bankr. E.D.N.C., Nov. 7, 2013).

Last year the American Civil Liberties Union (ACLU) disclosed IRS documents that show that the IRS believes it has the legal authority to read private emails without the individual’s knowledge or consent. Under the Electronic Communications Privacy Act, law enforcement (including the IRS) does not need a warrant to read emails and other electronic communications that are stored on a server for more than 180 days or that have been opened by the recipient.

Interestingly enough, the ACLU has expressed serious doubts as to whether the IRS is actually obtaining warrants before opening private emails. My advice today is that even if you believe that you are engaged in a “private” correspondence, please consider what you are putting in writing before hitting the “send” or “post” button.

Obviously, the best advice is to stay off social media but these days that’s almost an impossible expectation, and understandably but as many criminal cases have proved time and again, what you post online can and will be used against you if necessary. It is especially important to stop posting online if you are experiencing financial difficulties and may need protection under the federal bankruptcy laws. If you find that you cannot leave the world of social media alone, at the very least be as careful as possible when you’re posting.

When you file bankruptcy, your private finances are open to scrutiny by creditors, the IRS, and the bankruptcy trustee.

Just be consistent

Ensure that your online posts don’t contradict your IRS filings. For instance, if you deduct a business trip expense on your tax return, but you post pictures on Facebook bragging about your family vacation, the IRS may be suspicious of an apparent inconsistency in your story. Even when you are 100% truthful and will ultimately prevail during an audit, if your online activity does not match your tax return, you may be in for a long and expensive dance with an auditing agent and no one ever wants to be in that position.

Be careful, alert and watchful

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