Recent Tax Court Case Shows Social Media’s Role in IRS Exams

Blogs are the original social media platform, having emerged before Facebook, TikTok, Instagram, and the like. But while social media platforms come and go, one thing doesn’t change: The IRS can read them.

The popularity of blogging has waxed and waned. Most blogs go dormant after a handful of posts, yet some writers have built and maintained their blogs for years. Sydney Chaney Thomas is one of those persistent bloggers, updating regularly back to January 2014.

At sidneychaneythomas.com, you can find recipes, stories about living in San Francisco, meditations, and information on Ocean SF, “my ethical and sustainable sailing apparel brand.” You can also find sadder posts about how the author coped with her husband’s sudden death in 2016.

Innocent Spouse Rules

The death of Thomas’ husband produced tax loose ends for his widow. The couple filed joint returns for 2012, 2013, and 2014, reporting tax liabilities thatweren’t fully paid. Generally, both spouses are liable for taxes shown on a joint return—meaning Thomas was left with the tax bill—although this isn’t always the result.

The tax law can allow spouses to avoid some or all joint tax liabilities via Section 6015’s innocent spouse rules. The section has provisions for spouses who do not know that taxes aren’t being paid and for separated spouses to cut off joint liability.

For those who don’t otherwise qualify for spousal relief, Section 6015(f) allows the IRS to waive joint liability if “taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either).”

Thomas applied for relief from joint liability under Section 6015(f). The IRS turned her down, and she exercised her right to appeal the denial to the Tax Court. That’s when the IRS started reading her blog.

The Role of Equitable Relief

IRS guidance details factors it considers when analyzing Section 6015(f) equitable relief, including:

Whether the spouses are still married;
Whether the spouse requesting relief would suffer economic hardship; and
Whether the spouse requesting relief knows or had reason to know that the taxes were being understated.

The IRS started focusing on Thomas’ blog because all facts and circumstances can include aspects of a taxpayer’s marriage and financial life, and the blog reflected some of these.

Thomas had argued to the Tax Court that the IRS shouldn’t be able to use the posts. But the court sided with the IRS in a “reviewed” opinion, meaning all of the judges had a vote. No dissents were recorded, but a separate concurrence by Judge Ronald L. Buch noted some problems with how tax laws treat social media.

The Feb. 13 ruling, written by Judge Emin Toro, doesn’t say whether Thomas qualifies for relief from joint liabilities. Instead, it addressed whether the IRS could mine the blog for “newly discovered evidence” admissible in the case.

As Toro put it, “The contents of the posts are relevant because they reflect information about Ms. Thomas’ assets, lifestyle, and business, as well as her relationship with Mr. Thomas.”

Without knowing the details of the case, we can only guess why the posts were relevant. Some of them were about vacations at the family ski lodge, which might reflect on the family lifestyle and, indirectly, on the taxpayer’s ability to pay and any related economic hardship.

Social Media’s Role

Taxpayers wanting to rely on their social media must use the information before the case gets to Tax Court, during the administrative process of seeking innocent spouse relief from the IRS. In contrast, the IRS can wait until Tax Court proceedings open.

In his concurrence, Buch laid out two nearly identical hypotheticals—one where the social media posts help the IRS, and one where they help the taxpayer. The taxpayer-friendly example involved a hypothetical “Ms. Baker,” who updated her social media platforms with evidence of abuse at the hands of her spouse during her troubled marriage:

“Her social media posts would provide evidence of abuse. But because she created the social media posts, it may be difficult for her to establish that this potential evidence is newly discovered or previously unavailable to her. As a result, she may be precluded from introducing this evidence.

“This issue is not limited to social media posts. There is a vast array of evidence that could potentially be helpful to a putative innocent spouse yet might be excluded because it was neither newly discovered by nor previously unavailable to that putative innocent spouse. Examples might include medical records or police reports of abuse.

“Likewise, this could include financial records showing a putative innocent spouse’s dire financial situation. In each instance, evidence that is helpful to and offered by the putative innocent spouse at trial might be barred by because it was not presented in the administrative proceedings.”

The decision highlights a potential inequity in Tax Court procedure. But there’s a more universal lesson for taxpayers. The IRS has the internet and knows how to use it. So next time you have a hot take, remember—you might be sharing it with a future IRS examiner.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Joe Kristan is a partner in Eide Bailly’s National Tax Office and principal contributor to the Eide Bailly Tax News and Views blog.