Big data. The digital age. Our digital footprints. This post is an update to what I wrote last September about the IRS using data mining to find non compliant taxpayers, particularly those offshore.

Shortly after the internet began as we know it in our modern consciousness, Amazon launched in 1995 to little fanfare with a miniscule chance of success. They took our purchase histories and product browsing data to give us personalized recommendations. And we liked it. Amazon is the greatest retailer in the world today.

As the internet grew through the late 1990’s and the dotcom boom began, millions of web pages launched, but we couldn’t find anything. Google came along, indexed these pages, organized our own specific searches and created a special formula to help each of us individually find what we were looking for. And we liked it. Google is the largest search engine in the world.

Enter the era of social media. The company that made it easy to stay connected with friends, family and colleagues around the world in an easy to use internet template for free – Welcome Facebook. We can share the most intimate details of our lives here. And we liked it. If Facebook were a country, it would be the third largest in the world.

Our digital footprint has created an unimaginable amount of personal data that is accessible in this age of transparency. Marketers, retailers and just about everyone is now ‘helping’ us with an individualized experience wherever we go.

Enter the IRS. That’s about as personal as it can get.

Governments are looking for money and tax cheats (their term) are a key focus. Tax returns are narratives on how people earn and spend their money. With so much personal data out there in our digital footprints – imagine how the IRS can connect the dots on what you tell them and what you actually do. Or in finding those who are evading them completely!

Richard Satran from U.S. News & World Report has written an outstanding article called IRS High-Tech Tools Track Your Digital Footprint which details some of the things the IRS is looking to do in the near future – it’s comprehensive and for many, unsettling.

Here are some highlights from the article:

The agency declined to comment on how it will use its new technology. But agency officials have been outlining plans at industry conferences, working with IBM, EMC and other private-sector specialists. In presentations, officials have said they may use the big data for:

• Charting and analyzing social media such as Facebook
• Targeting audits by matching tax filings to social media or electronic payments
• Tracking individual Internet addresses and emailing patterns
• Sorting data in 32,000 categories of metadata and 1 million unique “attributes”
• Machine learning across “neural” networks
• Statistical and agent-based modeling
• Relationship analysis based on Social Security numbers and other personal identifiers

Officials have said much of the data will be used only for research. The agency’s economic forecasts and data are a key part of Washington’s budget infrastructure. Former commissioner Douglas Shulman said in an IRS statement that the technology will employ “billions of pieces of data” to target enforcement and to “detect and combat noncompliance.”

U.S. Tax Court records show that information gathered from Facebook and eBay postings have been used by the IRS in defending tax challenges. Under a Freedom of Information Act disclosure obtained by privacy advocates at the Electronic Frontier Foundation, the group published the IRS’s 38-page manual used to train auditors to search Internet addresses, Facebook postings and other social media to back audit enforcements.

Taxpayers should know that whatever people do and say electronically can and will be used against them in IRS enforcement.

Do we still like it?