Too Big to Veil: Social Networks are Virtual I.R.S. Spies
Life + Money

Too Big to Veil: Social Networks are Virtual I.R.S. Spies

When a few friends from the University of Central Oklahoma decided to promote their party business on their MySpace and Facebook profiles, their goals were pretty simple: Get drunk, have fun and meet girls.

"We had been partying for a long time and making money wasn't the priority," said Julius Baroi, one of the co-founders of the group, which they named Kegheadz. "It was to have fun and take credit for throwing these great parties."

Amid the partying and drinking, he and his buddies never realized someone might be sitting in a drab government office, scrolling through their MySpace photos and party invites to determine if they owed money to the government. The students told the IRS that they hosted 22 college parties over a year and a half, charging $5 at the door. They would typically pay a restaurant or bar owner a few hundred dollars to host the party; bar sales went entirely to the restaurant owners. Whatever was left at the end of the night was split among the five friends. The group claimed they made only $340 each over the year-and-a-half period.

"We each made enough money to cover our bar tabs for the night," said Baroi. But the students' inflated claims on their MySpace page tripped the red flag with the state tax authorities, who began to investigate. The buzz kill came in the form of a $320,000 bill from the Oklahoma Tax Commission, for back taxes and penalties. A lengthy court battle ensued.

The evidence for the case? All of it came from social networking sites. "They pulled out a huge file on us with hundreds of pages of screenshots. They had every party picture we ever posted," said Baroi.

Facebook Friends … or Foes?
Protecting one's privacy in the digital age is like learning how to swim in the Sahara Desert. No one hires people anymore without checking their Facebook, LinkedIn and MySpace pages. It's well known that job applicants have lost out when a human resources professional saw that photo of a joint-smoking, glassy-eyed wastrel.

When Facebook was attacked by privacy advocates, founder and CEO Mark Zuckerberg, 26, said he didn't believe in privacy. After protests took root, however, he changed his mind, offering more encryption to his 500 million active users — a number that's likely to reach 1 billion by the end of next year. "Facebook's scale is so big that governments can't ignore it, and they don't always like what they see," said David Kirkpatrick, author of The Facebook Effect, at a recent interview in Seattle. "Governments have already started looking at it with great interest and concern and you'll see that grow dramatically over time. It could get to the point where Facebook is a more reliable repository of data about you than any card the government issued," said Kirkpatrick.

The Fishbowl Effect
The Kegheadz case, along with hundreds more around the country, demonstrates how the IRS and other government agencies are using social networking sites to gather evidence and present it in court. Legal experts are wrestling with when and how that evidence should be used, whether any privacy laws are being violated, and whether the sites are providing enough privacy protection.

Earlier this year, a Freedom of Information Act (FOIA) lawsuit filed jointly by the Electronic Frontier Foundation, a privacy advocacy group, and the Samuelson Law, Technology and Public Policy Clinic at UC Berkeley revealed that the IRS is officially "training" their employees to track tax scofflaws using social media sites.

Documents released include an IRS training course entitled "Internet Research Tools," which "will introduce you to the Internet tools and searches that will be useful in locating taxpayers and determining their online business activity." Newly minted IRS web gurus learn how to cyberstalk potential targets, looking for any and all "potential sources of unreported income."

"It's always been clear that law enforcement can use deception to obtain information, and presumably they were doing it online, but there was no real indication of the scope of what was going on," said Shane Wintov, a Samuelson Law Clinic spokesman for the FOIA suit.

When pressed for comment, IRS spokesman Dean Patterson claimed to be "not well versed on social media" and unfamiliar with the IRS training course. "We generally don't talk about the work of our CI (Criminal Investigation) division," he said.

Self-Incriminating Status Updates
With the sheer volume of personal information revealed through tweets, status updates, photos and comments, social media can play a powerful role in court. A recent poll by the American Academy of Matrimonial Lawyers says that 81 percent of its members have used evidence pulled from Facebook, Twitter, LinkedIn and other social networking sites in the last five years. But interpreting that evidence is not always clear cut. Problems arise when judges and juries try to determine the context of an online posting or tweet.

To what extent do comments online reflect reality? In the Kegheadz case, tax commission officials used party pictures and comments left on the MySpace page and concluded that Kegheadz generated $1.2 million in revenue and owed $320,000 in taxes and penalties. But Baroi says the Kegheadz online chatter was mostly exaggerated. "That was the crazy part. No matter how many people showed up, we always inflated the numbers when we posted comments online." Tax commission officials argued that they were forced to rely on information from the MySpace page because the college students kept no records. At the end of the year-and-half-long court case, the students were still stuck with a much reduced $2,300 tax tab.

For many, it is still not clear to what extent social networks are supporting deceptive tactics that are sometimes used by law enforcement and government agencies as sting operations. In written guidelines, the IRS forbids agents from setting up fake profiles; however, no oversight exists to determine if these guidelines are being followed.

Baroi suspects deception was used in his case. "They spent hundreds of hours putting this case together, browsing the website, looking at the videos and Lord knows what else," he said. "They could have looked at some of the [public] information. But to see the pictures and the details you would have had to be on our friends list. And I'm sure they didn't sign up as Oklahoma Tax Commission."

Public vs. Private
Clearly, there's huge potential for government overreach. Many believe naively that social networks should be off limits for government and law enforcement. But their open nature encourages virtual communities and undermines user privacy. On Facebook and MySpace, for example, people have set up pages for their pets, for their robots, and for their companies and small businesses.

Kurt Opsahl, a senior staff attorney with the Electronic Frontier Foundation, has been spearheading a "Bill of Privacy Rights for Social Network Users." The document demands that social networks adhere to a set of privacy principles and let individuals control how their information is used. "The social networks are facing a choice between being proactive to improve privacy practices and to resolve the issue through self-regulation, or face the specter of additional government regulations," said Opsahl. Facebook spokesman Andrew Noyes notes that the company does respect privacy but must follow the law when it comes to inquiries from law enforcement. "We scrutinize every single information request and require a detailed description of why a request is being made, and if it is deemed appropriate, share only the minimum amount of information," said Noyes. "In the event of a verified emergency, like a kidnapping, where every minute counts, we feel a responsibility to transmit limited data that could save a life."

MySpace actively participates with law enforcement, providing ongoing training to cybercrime units, and has a dedicated hotline with 24/7 phone and email support for local, state and federal law enforcement agencies. According to a recent Rasmussen poll, 69 percent of Facebook users are concerned about security of their personal information.

Opsahl believes government agencies like the Federal Trade Commission should be applying pressure on social networking sites to be more responsive to privacy concerns. "Social networks are, for many people, an important means of communication on a daily basis," said Opsahl. "People are looking for an easy way to control the flow of their information so it appears in the appropriate context." Many aren't waiting around to see which side will win out in the emerging battle over social media privacy. For Julius Baroi and his friends at Kegheadz, their experience with social networks left them outraged.

"We knew the information was public to a certain degree, but to use it to access taxes was the outrageous part," said Baroi. "I've deactivated my accounts; I don't use Facebook, MySpace — none of it."