Is Your Online Imprint Going to Trigger an IRS Audit?

In mid-April I noticed a rather innocuous news release on the IRS website in regards to some type of email policy. If it wasn’t so cryptic and fraught with legal positioning, I would probably have considered it with the same drab spun by the IRS press cycle on a daily basis. However, the statement was so obtuse, it required at least a Google search or two to decipher the precipitous for the need to publically proclaim their position on email surveillance.

Here’s the IRS statement from April 18, 2013:

“Where the IRS already has an active criminal investigation and seeks to obtain the content of emails from an Internet Service Provider, we obtain a court ordered search warrant. It is not the IRS policy to seek the content of emails from ISPs in civil cases. Respecting taxpayer rights and taxpayer privacy are cornerstone principles for the IRS. Our job is to administer the nation’s tax laws, and we do so in a way that follows the law and treats taxpayers with respect. However, to resolve any remaining confusion surrounding this issue, the IRS is reviewing its policy and guidance and will make appropriate updates.”

I don’t have a crystal ball or a microphone in the IRS headquarters, but I believe the precipitous for the statement was damage control based on numerous news stories circulating recently that the IRS was beginning to use more than the standard tax disclosures to catch you in a tax lie. It was reported that the IRS was acquiring personal information on taxpayers’ online activities, from eBay auctions, Facebook posts, credit card transaction records, and e-payment transaction records, to verify the information reported (or not reported) on your tax return.

It was reported that the new online surveillance policy was precipitated because the IRS is under heavy pressure to help the federal government out of its budget crisis by chasing down revenue lost to evasions and errors each year. According to Edward Zelinsky, a professor at Benjamin N. Cardozo School of Law and Yale Law School. “I am sure people will be concerned about the use of personal information on databases in government, and those concerns are well-taken. It’s appropriate to watch it carefully. There should be safeguards.” He adds that taxpayers should know that whatever people do and say electronically can and will be used against them in IRS enforcement. Be warned.

It is alleged that the IRS is going a step beyond law enforcement agencies that use openly displayed social media information such as twitter, facebook, and instagram to prove illegal activity by asserting there is no right to privacy in personal correspondence via email, facebook chats, twitters direct messages, and similar non-public online communications.

According to a blog post by Nathan Wessler on the ACLU’s blog, even though judges are holding that people’s emails are private communications (most notably in United States v. Warshak, a 2010 decision from the Sixth Circuit Court of Appeals), the IRS is going its own way on the matter, claiming that Americans have no privacy rights in any correspondence sent via the internet, so that the IRS has no obligation to get search warrants. It was the policy of the IRS to read people’s email without getting a warrant. Not only that, but the IRS believed that the Fourth Amendment did not apply to email at all. A 2009 “Search Warrant Handbook” from the IRS Criminal Tax Division’s Office of Chief Counsel baldly asserts that “the Fourth Amendment does not protect communications held in electronic storage, such as email messages stored on a server, because internet users do not have a reasonable expectation of privacy in such communications.” Again in 2010, a presentation by the IRS Office of Chief Counsel asserts that the “4th Amendment Does Not Protect Emails Stored on Server” and there is “No Privacy Expectation” in those emails.

I suppose the end result for me on this issue is the portion of the statement that reads: “It is not the IRS policy to seek the content of emails from ISPs in civil cases.” In my dealings with the IRS in non-criminal cases, policy has no president or consideration in a collection case. Therefore, you should consider your online footprint a fishbowl for IRS audit fodder.