Can tax authorities check your Facebook account?

Unfortunately, yes. Despite the fact that the taxman is probably the least welcome person with whom you would like to share the details of your personal life, tax agents can target your Facebook account for the purpose of a tax investigation.

Simultaneously with the raising popularity of social media networks, such as Facebook, LinkedIn, Twitter, the users create an increasing volume of user-generated content. Social media platforms serve not only as a space for networking, but also as a tool for self-branding. That is, people attempt to create their digital-self by sharing the details of their lifestyle, such as status updates, photos of trips, holidays, and new purchases.

The extensive openness in social networks can have serious financial consequences, especially for those who submitted inaccurate annual tax declarations. If tax authorities detect incorrect elements in the tax return or suspect any illegal tax affairs, they may proceed with the verification of the declared tax return. The investigation conducted by the tax authorities includes traditional methods, such as examining bank accounts, offshore properties, employment, motor-vehicle records, and information collected from third parties.

However, tax agents rely not only on the traditional methods of searching for tax dodgers but also use more advanced tools for retrieving information about taxpayers’ digital activities. Such tax audit techniques include, but are not limited to, using specially designed research software, conducting Google search, examining Google Street View, employing predictive analytics, investigating social media, and visiting chat rooms. As Jim Eads, the executive director of the U. S. Federation of Tax Administrators, notes, “these new supplements are often far more efficient than the older ones, such as reading the local newspaper or making inquiries at barbershops and church meetings.”

For instance, the UK tax administration uses the software called “Connect”. The computer program is designed to extensively search data banks of personal and commercial information in order to discover links between individual taxpayers and businesses, income, assets, and transactions. Although Facebook is not routinely trawled by “Connect”, in case a taxpayer becomes a subject of an investigation, his/her Facebook account can be examined for evidence of assets, such as real estate and personal belongings.

Random tax audits related to digital activities are performed rarely. However, if a taxpayer is suspected to lie on the tax return declarations, it is possible that the publicly available information on Facebook and other social media platforms will become a target for a fraud investigation.

For the tax authorities, the Facebook account serves as a venue to detect suspicious details concerning the balance between a taxpayer’s lifestyle and his/her declared income. The content provided on a Facebook account, such as photos, location tags, ties with friends, and other daily updates, provides valuable information for a tax audit. The tax authorities are especially interested in looking for evidence of taxpayer’s lifestyle and signs of economic well-being, which does not comply with the officially declared tax return.

For example, photos of a new car, a major house renovation, a tag in a luxurious holiday destination, or an update of an employment situation can trigger tax inquiries if the tax declarations do not indicate the corresponding income and deductions.

In order to avoid possible issues, it is important to correctly adjust personal privacy settings. The settings on Facebook allow Facebook users to control the circle of people who are able to view their content. The users are provided with three options to protect their privacy: (1) content can be visible only for the user, (2) content can be visible to an approved list of friends, or (3) content is available to general public.

Generally, the taxman is allowed to collect data from publicly accessible, unrestricted websites. This means that the taxman can access a Facebook profile only if the privacy settings allow the information to be viewed by general public. Tax agents are not allowed to simulate and hide their identity as well as their intention of investigation when sending a friend request to a user in order to get access to his/her profile. Thus, unless the privacy settings of a taxpayer’s Facebook account keep strangers away from viewing his/her social media profile, the tax inspectors can collect and use all the information and updates posted by the taxpayer.

However, even if the privacy settings do not allow third parties to view a Facebook account, in case of legal requests, private information may be accessed and used for tax investigations. The Facebook data policy states that “information we receive about you, including financial transaction data related to purchases made with Facebook, may be accessed, processed and retained for an extended period of time when it is the subject of a legal request or obligation, governmental investigation, or investigations concerning possible violations of our terms or policies, or otherwise to prevent harm.”

If the tax administration checks user’s Facebook account, the user is allowed to provide evidence that the elements of the economic well-being demonstrated in the Facebook account are financed with means (1) that do not qualify as income or (2) for which there is no legal requirement to report them in the annual income tax return. In other words, the taxpayer can prove that an expensive cruise or a new car featured in the latest Facebook updates do not originate from unreported income but are financed with other sources. For example, the flashy new BMW featured in one of the photos in a Facebook account can be declared as (1) a purchase bought with savings, (2) a gift, or (3) a profit of the recent sale of shares.

However, if the taxpayer is not able to provide the necessary evidence for justifying the lifestyle featured in the Facebook account, the penalties on cheating on tax declarations include not only financial sanctions, but also can lead to imprisonment. For example, The Wall Street Journal claims: “in Minnesota, authorities were able to levy back taxes on the wages of a long-sought tax evader after he announced on MySpace that he would be returning to his home-town to work as a real-estate broker and gave his employer’s name. The state collected several thousand dollars, the full amount due.”

Being too chatty on Facebook had serious consequences for Rashia Wilson, self-proclaimed as “Queen of Tax Fraud”, who was sentenced for 21 years in prison for multiple criminal charges. Ms Wilson was caught after flaunting her tax scheming on Facebook with messages, such as “I’m Rashia, the queen of IRS tax fraud” or “I’m a millionaire for the record.”

Advice? Check your Facebook privacy settings!