The difference between what the Internal Revenue Service believes taxpayers owe and what they actually pay is referred to as the tax gap. Given the strained financial position of the U.S. Federal Government, the agency is now turning to a new resource to make it more difficult for taxpayers to perpetuate this fraud. It is reviewing social media accounts of alleged tax cheats to determine if there is any information that helps them make their case.
The IRS estimates that it loses billions of dollars in revenue as a result of taxpayers underreporting income and overreporting expenses in an attempt to reduce their liability. Someone reporting $22,000 in income who then proceeds to share images on Facebook of their new Mercedes-Benz S65 AMG would certainly have some explaning to do. Given the lack of consumer understanding of the intricacies of privacy controls on social media sites, it's likely that many people don't realize they are oversharing with the IRS. Privacy advocates are concerned that this practice—while legal—is a rights violation. Attorney Kristen Matthews believes that it's better to be safe than sorry. She advises consumers to be careful with what they share online and to check their privacy controls. The IRS indicates that it will not launch an investigation based on what it finds on Facebook, but will only look at social media after someone has already been flagged for suspicious activity.
Small-business owners should be wary. The IRS already puts much blame on entrepreneurs, self-employed persons and small-business owners for the tax gap. Combine this with flaunting success online and you have a potential recipe for an audit. It's best to keep a low profile, even though that runs counter to current popular culture.
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