"I don't really see strong legal regulation in place to manage something of this magnitude," says Paul Schwartz, University of California law professor and co-director of the Berkeley Center for Law & Technology. The IRS is working with the same kind of oversight and rules that were developed in the paper tax-return era, says Schwartz. But with the technology it now has, the agency can "see into people's lives" as never before.
Tax returns are like narratives of how people spent their money, and tax audits have been guided by "reasonable" interpretations of allowable credits and deductions by the IRS agents who manage audits. "Social media can make people testify against themselves," Schwartz says. "They provide a counter-narrative." He cites as an example a businessperson going to Florida for five meetings over a week who also visits family in Miami. A casual Google+ posting to friends online about "visiting my mother in Florida" could paint a different picture than the deduction taken on the tax form.
"It will be interesting to see what the IRS does with all of their new tools. They will have to be very careful," says Schwartz. So, too, will taxpayers.