Social Media in the IRS’ Crosshairs: Users May Be Setting the Stage for an Audit

While social media and taxes may at first glance appear to have nothing in common, in reality, the two areas are actually becoming more and more aligned. All too often, social media posts offer a window into the true lifestyle of the user. This could include an announcement of a newly purchased sports car or the photo evidence of a vacation trip. While these posts may receive thousands of “likes” on Facebook and Instagram, unbeknownst to the user, the viewers might just include an auditor or two, who, behind the scenes, are scrutinizing these posts against their associated tax returns. Did you report minimal income this year that would seemingly prevent you from buying the newest electric vehicle? Is the vacation hot spot the place you claimed to have changed residency to?

Motivated by past budget cuts and staffing shortages, the IRS is becoming more strategic in how it is using its resources. In recent years, the IRS has been rumored to be developing software to gather social media posts as a tactic to investigate the accuracy of income reported by taxpayers. In fact, the IRS makes clear in its Internal Revenue Manual 11.3.21 that it monitors “social media information, to perform compliance-related work.” Those who have recently been audited may know that the IRS diligently scours the internet for any information it can find on the targeted taxpayer including social media, credit card statements, property ownership, and more.

Uncovered social media can lead to unwanted attention from taxing authorities when inconsistencies arise, such as:

• An individual touting a new car purchase on Twitter thanks to “#crypto,” the gains of which went unreported on their tax return.
• A business owner posting lavish vacation photos on Instagram while on a “business trip.”
• A Facebook user announcing a recent change of residence from New York to Florida while continuing to “check in” at various locations in New York City.
• A freelancer changing their “gig” title on LinkedIn but failing to report such income on their tax return.

Our tax controversy professionals work tirelessly with clients to help them understand the importance of substantiating their tax positions with documentation and evidence while being realistic about their tax exposure. It is important to remember that almost anything posted on a social media platform is available to the public and therefore easily accessible by an auditor. For this reason, users should consider any unwanted repercussions, such as the potential tax implications of social posts.

Thankfully, viewed another way, social media can help a taxpayer support and defend their tax position. For example, posting move pictures when emptying out of your apartment to begin your new life in Texas can be extremely helpful in a residency exam. And LinkedIn pictures from a work conference can substantiate the deductibility of those trip expenses.

With social media a part of our everyday lives, we need to remain aware that the IRS and state tax authorities will continue to leverage them when auditing tax compliance issues. Being aware of your public profile and what you share on these various platforms can significantly impact the outcome of these examinations.

If you have questions about how tax auditors may use your social media, please contact Alan Goldenberg, Principal and Leader of the Tax Controversy and State and Local Taxation groups, Elizabeth Zabludoff, Principal and Leader of the Family Office Service group, or your Anchin Relationship Partner.