Social Media Influencers Could Face Next Wave of Federal Tax Fraud Investigations

The Internal Revenue Service (IRS) regularly establishes new enforcement priorities. In recent years, these priorities have included targeting partners in real estate syndicates, cryptocurrency investors, and other high-income individuals. Now, it appears that social media influencers could be next on the list. 

According to news reports, tax authorities in Germany have recently begun targeting social media influencers in tax fraud and tax evasion investigations. These efforts include establishing an “influencer team” tasked specifically with examining high-earning social media influencers’ tax filings. The “influencer team” is reportedly examining data from these influencers’ social media profiles as well—and then using the data to substantiate criminal tax-related charges in some cases. 

With Foreign Authorities Targeting Social Media Influencers, the U.S. is Likely to Follow Suit

In many cases, federal authorities in the U.S. not only follow the lead of their counterparts in other countries, but also join forces with their counterparts to enhance their investigative and enforcement capabilities. We’ve seen this previously with the IRS and U.S. Department of Justice’s (DOJ) efforts to target various types of tax fraud and tax evasion schemes. For example, the IRS is currently part of the Joint Chiefs of Global Tax Enforcement—known as the “J5”—which is “committed to combatting transnational tax crime through increased enforcement collaboration. . . . [and] work[ing] together to gather information, share intelligence, conduct operations and build the capacity of tax crime enforcement officials.”

Given that this is the case, we could soon see the IRS and the DOJ working alongside their foreign counterparts to target social media influencers in high-stakes tax fraud and tax evasion investigations. But, whether U.S. authorities work alone or in collaboration with their foreign counterparts, targeted social media influencers could face steep penalties. These include not only liability for back taxes and IRS-imposed tax penalties, but criminal fines and federal prison time as well. 

Potential Allegations in IRS and DOJ Investigations Targeting Social Media Influencers

If targeted by the IRS or the DOJ, social media influencers could face a wide a wide range of tax-related allegations. This includes both allegations that are uniquely related to their income-producing activities as influencers and allegations involving more traditional forms of tax evasion and tax fraud: 

Failing to Report (and Pay Tax On) Non-Cash Income and Benefits

Reports indicate that Germany’s “influencer” team is specifically targeting social media influencers’ failure to report (and pay tax on) non-cash income and benefits. This includes—but is by no means limited to—in-kind receipts such as: 

• Cryptocurrency
• Food and drink
• Loaner vehicles 
• Personal and professional services
• Products
• Securities and other investment shares
• Travel

In the United States, individuals and businesses have an obligation to report their worldwide income from all sources. As the IRS explains, “benefits you receive in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law.” Additionally, “[y]ou must include in your income, at the time received, the fair market value of property or services you receive in bartering.”

In short, with only very limited and specific exceptions, anything you receive in exchange for your services as a social media influencer is subject to reporting and taxation under the Internal Revenue Code. If the IRS discovers that you have not reported your worldwide cash and non-cash income from all sources—whether through an audit, investigation, or review of your social media accounts—you could face substantial legal exposure.

Failing to Make Claimed Charitable Donations

Germany’s “influencer team” is also reportedly specifically targeting social media influencers who claim to be collecting charitable donations but then keep the funds for themselves. In the U.S. (as in Germany), charitable donations are generally tax deductible, and if a third party facilitates others’ charitable donations, that third party’s handling of the donations does not trigger income reporting requirements. 

However, keeping supposed charitable donations without reporting them to the IRS not only constitutes tax fraud, but it constitutes various other forms of fraud as well. Social media influencers cannot mislead their followers into paying them; and, under the Internal Revenue Code, both legal and illegal-source income is subject to reporting and taxation. 

Failing to Report “Donations” as Taxable Income

Along with using their notoriety to earn income from promoting companies’ products and services, many social media influencers also collect substantial sums through Patreon and other platforms. While financial contributions from followers are often styled as “donations,” they are not true donations for federal income tax purposes. 

In this scenario, followers’ financial contributions are not tax-exempt donations, but instead are a clear form of taxable income. For contributions to qualify as tax-exempt donations, the recipient must be a qualifying tax-exempt organization. Since the vast majority of social media influencers operate for-profit enterprises (even if their profit is solely for their own financial gain or subsistence), the contributions they receive from their followers are taxable.

Failing to Make Quarterly Estimated Tax Payments

When social media influencers receive income from businesses (or sponsors) and their followers, they are required to report (and pay tax on) this income on a quarterly basis. This is a general requirement that applies to all taxpayers that do not have ordinary income tax withholdings through an employer. 

At a minimum, failure to make quarterly estimated tax payments triggers IRS penalties and interest. However, if a social media influencer knowingly or willfully fails to pay quarterly taxes when due, this can trigger federal criminal penalties for tax evasion. 

Claiming Fraudulent Business Deductions

Social media influencers can also face federal scrutiny for claiming fraudulent business deductions. This includes improperly claiming (or inflating) the home office deduction, improperly deducting personal travel expenses, and improperly deducting other purchases that are for personal (rather than business) use. While influencers may be able to validly deduct a wide range of expenses, they must ensure not only that their deductions comply with the law, but that they are prepared to prove that their deductions comply with the law if necessary. 

Other Forms of Tax Evasion and Tax Fraud 

Along with these issues, various other tax-related issues can get social media influencers into trouble with the IRS and the DOJ as well. For example, even if an influencer does not report taxable income to the IRS, the sponsor or other party that paid the influencer may still report the payment on Form 1099. Social media influencers can also face scrutiny for failing to disclose bank accounts in foreign countries, improperly claiming business losses, and a wide range of other issues that can either trigger civil or criminal penalties depending on the circumstances involved. 

Again, these are just examples. Federal tax-related audits and investigations can target a wide range of violations of the Internal Revenue Code. In many cases, they will target non-tax-related offenses as well (such as money laundering and wire fraud). These are serious federal crimes that also carry substantial fines and prison time.

What Social Media Influencers Should Do if They Have Tax-Related Concerns

With all of this in mind, if you are a social media influencer and you have concerns about your tax compliance record, what can (and should) you do?

Mitigating your risk in this scenario requires an informed approach. While many people assume that filing a delinquent return will resolve their tax problems, this isn’t necessarily the case. In fact, filing a delinquent return can trigger IRS scrutiny in some cases. 

The same is true of attempting to correct past tax mistakes on a current tax return. This is referred to as a “quiet disclosure,” and this is even more likely to result in a tax audit or criminal tax fraud investigation. 

Instead, social media influencers may need to consider options such as submitting a voluntary disclosure or proactively engaging in settlement negotiations with the IRS. While these options can lead to favorable outcomes in appropriate circumstances, they can also be high-risk if approached incorrectly. As a result, experienced legal representation is essential. 

Another important consideration is the fact that an audit or investigation could already be underway. If the IRS or the DOJ is already looking into your income sources and tax filings (or lack thereof), this will limit the options you have available. It will also increase the urgency of your situation significantly. While facing an audit or investigation doesn’t necessarily mean that you will be held liable for back taxes or face criminal prosecution, at this stage you will need to mount an effective defense to avoid unnecessary consequences. 

Contact the Federal Defense Lawyers at Oberheiden P.C.

Oberheiden P.C. is a team of senior federal defense lawyers and defense consultants that includes former DOJ attorneys, former IRS agents, and other former high-ranking federal personnel. If you are facing scrutiny from the DOJ, IRS, or any other federal agency as a social media influencer, we invite you to contact us for more information. Call 888-680-1745 or contact us online to schedule a complimentary consultation today.