Finance

How Your Social Media Posts Can Affect Your U.S. Taxes

17 November 2021By Tom Andrews
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Written by

Tom Andrews

This tax advice is not intended, and cannot be used, to avoid any penalties as a result of taking any position from this column. Thomas Andrews is a CPA and a principal of AvMar Accounting Services. +1 954 764 0404; www.avmaraccounting.com

Several years ago, I wrote a column that explored an interesting development in IRS audit techniques. As technology has improved, the IRS began researching the social media accounts of taxpayers. The IRS insists that it’s only using public information, so as long as your privacy settings are up to date and social media profiles aren’t 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 (FEIE) 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 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.

If a crewmember is claiming the FEIE in an effort to offset income, a social media search might lead an auditor to ask more questions than are necessary. The IRS may make the argument that reading private emails and social media posts does not require a search warrant and public outrage would probably cause the IRS to use this technique sparingly.

The IRS insists that it’s only using public information, so as long as your privacy settings are up to date and social media profiles aren’t made public, the information should remain private.

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, and 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 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 Islands 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. Your best policy is to keep honest and accurate records.

This article originally ran in the August 2021 issue of Dockwalk.

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