By Tom Andrews, CPA
Several years ago I wrote a column that explored an interested development in IRS audit techniques. As technology has improved the IRS began researching the social the social media accounts of tax payers. The IRS insists that it is only using information that is public so as long as your privacy settings are up to date and social media profiles are not made public the information should remain private.
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 business related 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 a yacht crewmember has not filed taxes in several years or has not reported income a quick search of their social media might indicate they are gainfully employed and living a lifestyle that might not be afforded to an unemployed individual.
Also if a crewmember is claiming the foreign earned income exclusion in an effort to offset income, a social media search might reveal that might lead an auditor to ask more questions than are necessary. The IRS tried making the argument that reading private emails and social media posts does not require a search warrant, public outrage will probably cause the IRS to use this technique sparingly. I would actually be more concerned if I were a nonresident crewmember, Australia and New Zealand have been actively investigating crewmembers incorrectly filing as nonresidents, social media posts may assist those auditors in challenging the taxpayer claims.
Several years ago there was 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.
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.