Is What You Share on Social Media Putting You at Risk of a Tax Audit?
Carson College of Business researchers say be careful what you post

By Eric Hollenbeck

If you’re someone who likes to share your expensive purchases or lavish vacations with your friends and followers online, you may want to think twice about what you post because the Internal Revenue Service could be keeping track and using that information against you.

Kimberly Houser

Kimberly Houser, clinical associate professor of business law, and Debbe Sanders, professor of accounting at WSU Vancouver, describe how the IRS has turned to social media to collect data on taxpayers and use secret algorithms to predict tax fraud.   

Their research paper, published in the Vanderbilt Journal of Entertainment and Technology Law, looks at the IRS’s data collection practices and suggests the IRS may be using this information to unfairly target taxpayers, infringing on individuals’ right to privacy and even subjecting some to unnecessary audits.

The agency’s data collection and analytics program violate citizens’ right to privacy under the Privacy Act of 1974, say the authors. The law gives citizens the right to access private information about themselves maintained by government agencies as well as a right to correct inaccurate information maintained by the government. Unfortunately, the IRS does not disclose what information it collects or the algorithm used to analyze its data.

Privacy and confidentiality in the modern digital era

As social media has become more ingrained in our daily lives, current laws surrounding privacy and data collection need revised to reflect the new digital era. “Many of these (privacy) statutes were written before the internet was widely used, and certainly before social media,” Houser says in an article published by the Spokesman Review.

“My instinct is that because the law is not worded as broadly as it could be to cover these situations, the IRS has just taken the stance of ‘Let’s just do what we can until someone tells us we can’t,’” she says.

Debbe Sanders

The authors are concerned about potential discrimination that can arise when the service uses algorithms to seek perceived irregularities in tax returns. Some groups of people might have spending patterns and deductions that get flagged for auditing when in fact they have done nothing wrong, which could lead to wrongful audits or discrimination.

Even more troubling is the IRS’s history of misusing the audit function to harass and intimidate individuals and organizations, falling well outside the intended purpose of an audit.

“If Nike is analyzing my information, the worst consequence is that they market stuff to me that I don’t want and it’s annoying,” says Behnam Dayanim, cochair of the privacy and cybersecurity practice at global law firm Paul Hastings. “If the government does it, the worst consequence is there could be legal ramifications, whether its fines, penalties, or imprisonment.

When a government agency operates under a veil of secrecy, it puts the rights of its citizens at risk. “What is being sold as an efficient fraud detection system, may actually be the end of privacy as we know it,” say Houser and Sanders.

Read the WSU News article to learn more about Houser and Sander’s research on IRS practices.