by Tom Andrews, CPA
The media frequently portrays the IRS as an unorganized, inefficient, bureaucratic collection of government workers, and while there are stories that can lend credence to this reputation I can tell from experience that IRS auditors are often savvy, intelligent and efficient. And if the IRS isn’t already doing so I believe they will soon be trolling social media to corroborate the supporting documentation provided by taxpayers.
This is of special notice to Americans working in the yachting industry. Many yacht crewmembers have claimed the foreign earned income exclusion or deducted various “travel expenses”. If audited the IRS expects to see supporting documentation and other evidence that supports your claim for these deductions. IRS auditors will even gather all of the receipts you provide them for a given day and make sure all of those receipts and supporting documentation are in sequence. For example if you provide a fuel receipt that is time dated in Orlando at 1PM how can you also be eating lunch in Sag Harbor at 2PM, I’ve seen taxpayers do this, they just throw a bunch of receipts together without thoroughly vetting them. As you can see a little detective work can uncover deceit.
This brings me to Social Media, if you are providing a travel schedule to an IRS auditor and that auditor somehow gets hold of your Facebook or Instagram profile will your pictures and posts tell a different story than what is being reported? There was recently a story printed in a Swedish newspaper about a man that was been ordered to pay $ 750,000 (£ 494,000) after authorities discovered he had a secret job via his LinkedIn profile. The Swedish police’s financial crimes division launched an investigation after they were sent an anonymous letter and paperwork suggesting that the unnamed individual worked for a company in the British Virgin Isles that deals with biomass products. As part of the inquiry, authorities checked the culprit’s profile on professional networking site LinkedIn and found that the man had listed himself as an employee of the company since 2004.
Checks on the man and his wife’s bank accounts also revealed that the couple had been receiving payments from several foreign companies since 2007. The agency has claimed back money as far back as 2008, charging $ 150,000 (£ 99,000) per year of unpaid taxes.
While I doubt the IRS has the resources and support to openly snoop the internet in search of violators as part of a “fishing expedition” I do believe that individual auditors may look to this option if there is an open investigation on a taxpayer. It is important for taxpayers to realize that technology is continuing to erode anonymity, in the end your best policy is to keep honest and accurate records.