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THE CUTTING EDGE | POSTCARD FROM CYBERSPACE / DANIEL
AKST

Cheaters Take Heed: The Tax Man Surfeth

September 16, 1996|DANIEL AKST

When the Internal Revenue Service was auditing a certain unnamed performer recently, the investigating agent noticed that the individual's tax return listed no foreign concerts. That struck the agent as odd, because such appearances by this performer were listed on a concert schedule--a schedule that happens to be on the World Wide Web.

Uh-oh. Some IRS agents have discovered that the Internet is a pretty good place to find out things, and they're using it to gather background information on taxpayers under scrutiny. They're also looking for possible unreported income, and examining whether firms are telling customers and investors the same things they're telling tax authorities.

There's no particular IRS policy on using the Internet in this manner. Revenue agents generally find their way onto the Internet on their own, just like the rest of us. The difference is that folks at the IRS seem to be finding the Net more than mere diversion.

One obvious use for it is obtaining public information. IRS spokeswoman Laurie Keleman says agents have used the Internet to obtain companies' filings with the Securities and Exchange Commission, for example. These are often available cheaper and faster on the Internet (at http://www.sec.gov/) than anywhere else.

Keleman says agents have also used the Internet to quickly obtain data on interest rates and the price of Treasury and other securities, presumably to check the validity of what taxpayers are saying on their returns. (The Internet offers lots of data on stocks and bonds; a good place to begin is with the Yahoo search engine at http://www.yahoo.com; choose "Business" and then choose "Quotes.")

Keleman also cited the Bureau of Labor Statistics Web site (http://stats.bls.gov/), which has information about average earnings in various lines of work. The site can be searched by keyword; playing around with this, I discovered how much roofers make in New York and Denver, as well as the name of a trade publication with more complete information. I also found out that drywall installers can be paid either by the hour or by how much drywall they put up.

In the category of "give a man enough rope," Keleman says another useful Internet resource comes in the form of a company's own public statements. For instance, companies are typically required to capitalize major expenses--that is, deduct them over several years instead of all at once. But recently a Southern California company claimed some large capital expenditures as immediately deductible, because (according to Keleman) the firm was going out of the business for which the money had been spent. Yet on the World Wide Web, a revenue agent found a company press release saying that that particular line of business was going great guns. Was the company misleading the IRS or the public?

An IRS spokeswoman cautions that it might not have been misleading anybody, but the example shows how some imaginative agents are using the Internet.

Another obvious way IRS staff members have used the Internet is by checking the usual sources--for instance, the remarkable Alta Vista search engine (http://www.altavista.digital.com)to see if a taxpayer might have some unreported income. An example: My home page mentions my recently published book. If my tax return doesn't, and I get audited by an Internet-savvy agent, I could be in trouble. If you're selling shareware or anything else on the World Wide Web, you might bear this in mind at tax time.

If you listen carefully, right about now you can practically hear the cries of privacy advocates bemoaning this latest manifestation of government intrusiveness. I confess to being less alarmed. In my humble opinion, it's good news that a few IRS agents are trolling the Internet for useful auditing information.

If anything, the government ought to make it easier for them by providing the training and equipment needed so more IRS agents can do the same.

What's good about the IRS snooping around online? Evidently, the Internet can help the government catch people and firms that cheat on their income taxes. Since you and I pay our taxes, those who don't are getting a free ride at our expense, which ought to make us mad.

In short, the Internet is a public medium. Trolling it to see what people are selling or saying about themselves is something anybody can do, so why not the IRS? If an agent auditing your returns saw you on television hawking T-shirts outside Dodger Stadium and you reported no such income on your taxes, shouldn't Uncle Sam raise a few questions?

The IRS' use of the Internet in this way is also a testament to the resourcefulness and initiative of that much-maligned breed, the government employee. In this case, IRS agents around the country have used their own time and money to access the Internet, sometimes rigging up an online connection with outdated IRS equipment.

It's nice to see a little Internet success at the IRS, which has quite a mixed record in the online arena. On the one hand, the agency maintains a really witty and well-designed Web site (http://www.irs.ustreas.gov/prod/cover.html), allowing taxpayers to download a plethora of forms on the spot. On the other hand, the agency's Cyberfile program has been a bust. Intended to allow taxpayers to file returns electronically, Cyberfile theoretically would have saved time and effort for an organization that puts everything into computers anyway. But the program was called off because it wasn't sufficiently secure, and the General Accounting Office has been sharply critical.

Daniel Akst welcomes messages at dan.akst@latimes.com. His World Wide Web page is at http://www.well.com/ ~akst/

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