I am lumping bankruptcy and taxes together for two reasons. The first is that these are my other two areas of practice. I have done thousands of bankruptcies in the past and I am a tax preparer as well. So these are major practice areas of my firm. I do not believe that anyone whose main office is in the City of Lowell has done more bankruptcy petitions than I have. I do not know where I rate in terms of volume of taxes prepared, but we do somewhere in the neighborhood of five or six hundred a year. Unlike almost every other tax preparer in the city of Lowell, I stay around all year and deal with any issues that may come up on any tax return that I have filed. As such, tax law is a practice area of mine as well. Fortunately, not many issues come up, so I do not consider tax law to be a major practice area of mine. The second reason I lump the two together is because Facebook and other social media has not yet had a major influence in these two areas of practice, but where it could be an issue is pretty much the same in both cases. I am not aware that the United States Trustee is routinely scrolling through the social media sites of people who file bankruptcy, nor am I aware that the IRS is routinely scanning social media pages of tax payers. However, there is every reason to believe that if you otherwise find yourself in the crosshairs of the United States Trustee or of the Internal Revenue Service, that they will look at your social media pages as part of their investigation. It is easy to do and not at all costly.
One thing that has always amazed me is the number of criminals who get caught because they talk about their crimes on social media. The only advice I have on that subject is do not commit crimes. What concerns me about social media and bankruptcy and taxes is that there is a tendency on the part of some people to project lives on social media that are a little bit fuller than the reality. For example, I have one friend on Facebook who I really have a hard time understanding. It seems like she is always at parties, on vacation, at the beach, or just living the life. I do not understand how she finds time to do all of the things that she does. I have now been Facebooking for about three years and I have started to notice that she is recycling photos.
Now it is perfectly fine to project whatever image you want to project on social media. And it is all well and good to relive past memories by posting them on social media. The point of this blog or any other blog I put up is not to tell you how to live your personal life or how to behave in general on social media. I am only interested in the intersections of social media and the law.
This particular person I referenced is not a bankruptcy client of mine. She has had a couple of car accidents over the years and we have remained friends, at least on Facebook. Actually, she refers me a client from time to time and I appreciate that. If she were a bankruptcy client of mine, I think I would be telling her to take it easy on her Facebook posts, at least the recycled ones. She is projecting a life on Facebook that is not one that the United States Trustee would like to see. Either she is spending a lot of money that should be going to her creditors instead of living the good life, or she is living the good life on credit when she has to know that she does not have the income to support it. I will say that I have never had a case where this has been a problem, but it is something to keep in mind.
On the tax side, this would be an even less interesting issue for most people. For most people, their incomes are fairly well documented. They have jobs and they receive W-2 forms. If she were a self-employed person, and I were doing her taxes, I might have to have a conversation with her if she were reporting a very low income. There is certainly a disconnect between putting on your tax form that you are making fifty-thousand dollars a year and putting on your Facebook wall pictures of you partying on yachts all over the Caribbean. I always want to have a conversation with my clients on how to bulletproof the tax return. That is to say, I want the client to sit down and talk about how to document the business income and expenses in such a way that even the most ruthless IRS examiner would ultimately have to back down. She would need to document where the money has come from for this extravagant lifestyle, or in the alternative, when did this extravagant lifestyle take place. Again, if my client is posting five year old pictures of her at St. Barts, and the trip was financed by her then boyfriend, then that is one thing. If she just went during the tax year for which I am preparing the 1040 forms, then where did the money come from for all of these trips? Did she rent the yacht, or did it simply belong to a friend that she was visiting? Here again, this is an issue that would only come up in the event that the IRS were already auditing this person. If the tax return is itself well prepared, then it is unlikely that they will ever be looking at somebody’s Facebook wall, or Twitter post or other such thing. However, if she were in an audit, her social media postings would be fair game.
I did mention that I have been Facebooking for about three years. My law office has a page, and I have a personal page. In the course of those three years, I have seen what people post. Among the things that people post are big ticket purchases. New cars go up on Facebook. So do jewelry purchases, an occasional widescreen television and houses. Here again, it does not appear the United States Trustee or the Chapter 7 Trustees are willy nilly looking at people’s social media accounts, and I do not think it would be particularly productive if they did. However, a small number of people do run afoul of the United States Trustee, and there have been some pretty nasty brawls in the Bankruptcy Court. What is more, bankruptcy fraud is a crime, and it is prosecuted from time to time. At that point, you are dealing with the FBI and the United States Attorney. I have never had a case prosecuted, and I have had very few run-ins with the United States Trustee, and only a couple that have gone beyond my providing documents and them sending them back with no action. I have never had a case where the United States Trustee or the Chapter 7 Trustee has looked at my client’s social media postings, at least not ones that I am aware of. Of course, if they looked and found nothing, then there is no reason for me to know that. One of the key issues in bankruptcy is that you are required to make full disclosure of all your assets and of all your income. That is true with everyone. Full disclosure is always the best course. It is amazing how many times I have had to use dental tools to get my clients to tell me they had something that turned out not to be a problem. I dare say that I have had more problems with clients failing to mention things to me than I have had because a client told me something that I could not handle in bankruptcy.
Although full disclosure is always the best policy in bankruptcy, that becomes especially true if you are someone who is making full disclosure of your life on the internet. Please do not report that you only have five-hundred dollars worth of jewelry and then post on Facebook all kinds of pictures of yourself bejeweled, or all kinds of pictures showing what beautiful things your boyfriend has bought for you, sometimes with the receipt in the picture. Similarly, do not report that your job is your sole source of income, but post on the internet how great you are doing in your side-business. If you have a business, you should be reporting it. Not reporting it usually causes nothing but problems. However, not reporting it and also broadcasting it through social media is just getting down on your knees and begging for problems.