Is the IRS Looking at Your Social Media?

image of Mark J. Corey, CPA, JD

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Mark J. Corey, CPA, JD

Have you posted a recent photo of your new boat, sports car or exotic vacation to Facebook, Instagram or other social media even though you report a low income to the government?

The Internal Revenue Service (IRS) is rumored to be developing software to gather social media information in conjunction with other information such as credit card statements, bank accounts, investments, property ownership, etc. to form a comprehensive financial picture of each U.S. taxpayer.  This information can then be used to investigate whether filed tax returns might be missing reportable income or overstating reported expenses, giving the IRS a list of taxpayers who should be audited.  The IRS has consistently denied they have such a program but, in a Fox Business interview, a representative of the IRS did admit that they do monitor publically available information to “assist with already existing compliance work”.

Many countries around the world are or have built such a data gathering tool for tax information collecting.  India recently launched “Project Insight” to gather information on taxpayers who are not paying the proper amount of tax and close their “Tax Gap” (the amount of tax not reported to the government that should be reported).  Officials in India hope to match taxpayers’ spending patterns with their reported income- with differences possibly flagging them for tax notices.

Data analytics is the term used for this effort at data mining and other countries are already using it to catch underreporting taxpayers.  Belgium, Canada, Australia and Britain all have some form of data analytics being used to identify underreporting taxpayers.

There is a question of the legality in the US of the IRS using such a data mining program to look for audit targets.  The IRS has traditionally used mis-reporting of failure to report income as its metric for finding taxpayers to audit.  But experts mostly agree that even under current US law the IRS would be able to use data mining to identify problems with a taxpayers reporting of income and expense if they were selected for audit under the traditional means and the social media information was used to corroborate information the taxpayer reported (or failed to report) on their tax returns.

Whether the IRS is using social media and other public information to spot tax evaders or just to aid in existing compliance issues it would seem wise to make sure your social media posts are in keeping with your reported income.