April 29, 2014

Remember the Queen of Tax Fraud? She flaunted her tax scheming on Facebook and got caught, hard.

If you are a tax cheat, the IRS may be closer to nabbing you than you ever imagined, especially if you spend time interacting on social media. How so? Two words: predictive analytics. Through predictive analytics, the IRS mines public data from social media platforms to look for risky business. If you have taken the time and efforts to lock down your account to limit the amount of public data you put out there, you’re less likely to be detected. But still, the IRS may be spying and snooping through your private social media messages as well.

What Is Predictive Analytics?

Predictive analytics represents a high-tech crystal ball or oracle. By sifting through vast amounts of what is known as “big data” it is often possible to detect trends that can provide predictive insight about future human behavior. The IRS intends to sift through the chatter of social media to devise a model of the type of individual who is most likely to attempt to skirt his or her tax burden. If you happen to fit the IRS model, your return might merit closer scrutiny. If the results of an initial inspection reveal suspicious items, you may very well receive the dreaded audit notice in the mail.

The Right to Privacy – Sort Of

You may not like the idea of the IRS “listening” in on your Twitter feed or comments that you post on a public wall, but it’s perfectly legal, just as it is legal for someone to snap your photo when you are out in public. On the other hand a 2009 Search Warrant Handbook produced by the IRS claimed that the agency also had the right to read the private email and social media messages of ordinary Americans.

Before 2010, the general rule followed by the IRS and law enforcement agencies stated that email messages more than 180 days old could be seized through an administrative subpoena, or by a 2703(d) order, neither of which must meet the probable cause standard of a warrant. But a 2010 Supreme Court case, U.S. v Warshak, ruled that the protections granted to electronic communications under the 1986 Electronic Communications Privacy Act were extended to private email communications, regardless of the age of the messages.

As a result of Warshak, Facebook, Google, Yahoo, Microsoft and other providers took a public position that the email messages of their users were protected from unreasonable search and seizure. But a 2011 IRS update to the Search Warrant Handbook claimed that Warshak had changed nothing concerning the right of the agency to seize the private electronic communications of Americans. It was only after the American Civil Liberties Union had obtained a copy of the IRS Search Warrant Handbook and online tech portal CNET made the IRS position public in 2013 that the agency backed down.

In the face of vigorous pushback, the agency conceded that email messages were entitled to Fourth Amendment right to privacy, but remained ominously silent about whether private communications transmitted through social media enjoyed the same rights.

Better Watch What You Say

Suggestions that the IRS is using social media to target taxpayers for audit are wrong. Audits are based on the information contained on a person’s tax return, not a posting on a social media site. – IRS to Fox Business.com

As of this writing, the IRS has failed to make a definitive statement concerning the protections granted – or not granted – to private communications transmitted through social media. Given this circumstance, individuals would be well advised to exercise caution concerning social media communication, be it posted on a public wall or transmitted through an ostensibly private social media message. You never know who might be reading your “private” messages.