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Social media: A new tool in proving tax fraud

On Behalf of | Nov 13, 2018 | Uncategorized

How do these topics go together? The French Minister of Action and Public Accounts, Gerald Darmanin, announced that its IRS-equivalent tax enforcement agency will start searching social media as it cracks down on tax fraud. Here in the U.S., the Criminal Investigation division of the IRS (IRS-CI) also reviews social media when building tax fraud cases.

Darmanin warned, “If you have numerous pictures of yourself with a luxury car while you don’t have the means to own one, then maybe your cousin or girlfriend has lent it to you … or maybe not. (emphasis added)” To review public posts, the IRS and other law enforcement organizations do not generally need subpoenas.

The difference between negligence and fraud

When there is a math miscalculation or error with business deductions, the first step is a tax audit. A referral to the IRS-CI could occur when evidence of an intentional tax evasion scheme turns up.

Some patterns of conduct that raise red flags include the following:

  • Keeping multiple sets of records/books
  • Characterizing luxury personal expenses (i.e. dinner parties, visits to the spa and tailored suits) as business deductions
  • Asking a foreign bank not to send correspondence to a US address
  • Hiding or falsifying information during an audit.

Or the evidence could be as blatant as a Facebook post where a taxpayer posed with piles of cash and gave herself the title “queen of IRS tax fraud.” This happened in a Florida case. The Assistant U.S. attorney read Facebook posts into evidence. While the taxpayer bragged online that she would do not time, she ultimately received a 21-year prison sentence that included an order to pay significant restitution.

Referral for criminal prosecution

When an IRS auditor identifies potential fraud, several layers of internal review commence before referring a case for prosecution. A compliance group manager and fraud technical advisor are involved. Then a case roadmap kicks off and the case goes into a fraud development status.

If you are under audit, how do you know this change in stance has occurred? You might get requests for additional tax returns or documentation/business records. Involving a tax attorney at the audit phase is another way to anticipate potential risks and develop the best possible mitigation strategy.

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