Oversharing on Social Media Reaches the Tax Court

0 Flares Filament.io 0 Flares ×

Today guest blogger James Creech brings us a cautionary tale of social media undermining a taxpayer’s credibility. After reading this post, practitioners may want to read this article by Marie V. Lim of the ABA Section of Litigation, on how to use social media at trial.

As James notes, social media also brings up ethical concerns for lawyers. In addition to the issues discussed below, attorneys must be careful as they investigate their opponents. The issue is not so much “who” can be investigated but “how”. Under Rule 8.4 it is professional misconduct for a lawyer to engage in conduct involving dishonesty, deceit, or misrepresentation. If an opponent’s social media account is not public, how can one go about accessing the incriminating posts that are certain to exist? Before engaging in any schemes, practitioners would be well advised to research the applicable ethics opinions. The Philadelphia Bar Association, for example, has advised that attempting to “friend” a witness to gain access to information on Facebook or Myspace is pretextual and violates Rule 8.4(c), even if there is no fake name or falsehood used. However, the State Bar of Oregon came out the other way. Christine

Most of us know social media is a double-edged sword. It allows us to share events and thoughts in real time regardless of the substance. Sometimes those thoughts are genius and inspire others, other times those thoughts are inane, banal, or outright stupid. Occasionally these posts cost (or make) people real money. One of these situations where social media posts perhaps cost a taxpayer real money is the recently decided Tax Court case of Brzyski v. Commissioner, T.C. Summary Opinion 2020-25 released on August 27.

read more...

The facts of Brzyski are complicated and highly factual. Mr. Brzyski claimed the children of his significant other as qualifying children for the dependency exemption. The IRS disallowed the dependency exemption because Mr. Brzyski was not formally married to the children’s mother and without a marriage the children cannot be qualifying stepchildren. Mr. Brzyski claims that while not formally married in his home state of California, one night while he and his significant other were in Missouri they crossed the border into Kansas for dinner and declared themselves married. Thus, according to Mr. Brzyski, they were legally common-law married in Kansas and the children met the relationship test. To provide support for this Mr. Brzyski testified to this effect and produced affidavits from family members to the same effect.

While the facts might be unusual, even more unusual is how the taxpayer’s version of events was discredited. At trial social media posts were entered into evidence (presumably by Chief Counsel) that showed Mr. Brzyski referring to his significant other as his fiancée after the date of their alleged common law marriage. This plus a host of other inconsistencies (which were probably enough to carry the day for the respondent without mention of the social media post) were enough to satisfy Judge Copeland that the testimony regarding a Kansas common law marriage was unreliable and not enough for the taxpayer to carry their burden of proof. As a result the dependency deduction was denied.

From a quick search it appears that Brzyski may be the first Tax Court decision in which social media posts are cited to as direct evidence of a taxpayer’s lack of credibility. It also appears to be the first decision where the social media posts introduced into evidence could have only come from Chief Counsel’s office.

To get a sense of just how novel this is, it is worth looking at the totality of social media in Tax Court decisions. Tax Court decisions do not cite to social media frequently. Excluding Brzyski, a keyword search using the Tax Court’s website for even a single mention of “social media” returns six cases. A search using the term “Facebook” as a proxy for social media returns eight cases and of those eight cases two of the “Facebook” cases refer to Facebook’s Taxpayer Bill of Rights litigation. This leaves a grand total of twelve cases that cite to social media.

Of the twelve cases that remain for social media, nine of the cases involve the petitioner introducing social media as evidence of a for profit enterprise or as part of a business plan, one case discusses the business expense of a computer that was also used for work and personal social media usage, one opinion from Judge Holmes mentions the company Facebook to set the stage for discussing a petitioner’s career in technology, and one case memorializes a laundry list of the taxpayer’s grievances including the notion that social media websites were conspiring against his vaporizer business.

One common thread that Brzyski shares with the other nine relevant cases is that each of the social media cases is about mindset. Posts on social media are generally inadmissible hearsay if offered by the declarant for the truth of the matter asserted. A part time horse breeder cannot claim a Facebook post stating “We are now a legitimate stable conducting a for profit enterprise” is substantive evidence in his favor for purposes of section 183.

However, as an indicator of mindset social media posts can be useful. The low threshold for publication and our cultural habit of oversharing and introspection mean that they are probably a fairly accurate indicator of the declarant’s mental state. (See FRE 803(3)). One could also imagine social media posts that might plausibly qualify for the  excited utterance exception to the hearsay rules under the Federal Rules of Evidence Rule 803(2). Present sense impression is a third exception that might apply. (FRE 803(1)). As a result, social media posts have been useful in the past for practitioners to reconstruct the mindset of a client. For instance, one could learn a lot from the social media posts of a struggling small business owner who has lost money four straight years.

Now that the Tax Court is on the record giving more weight to a spontaneous social media post that hurts the taxpayer than to the taxpayer’s actual testimony at trial, practitioners should beware that these posts cut both ways. As a result of Brzyski, due diligence as to a client’s social media should be conducted if the case relies heavily on the petitioner’s credibly on the witness stand. However, this potentially opens up the Pandora’s box of what to do if practitioner learns prior to trial that the petitioner’s version of events does not match the story social media tells. This can lead to conflicts between Model Rule 3.3’s Duty of Candor Towards the Tribunal vs Model Rule 1.6’s Duty of Confidentiality. As with many social media issues today, solving one problem invariably leads to another.

Comments

  1. Kenneth H. Ryesky says

    When I was with the IRS during the pre-internet era, I had a somewhat analogous situation with the “social media” that was state-of-the-art for the day.

    I was auditing the Estate Tax return of a decedent whose eponymous business was conspicuous by its absence from the Form 706. I found a wedding announcement of the decedent’s grandchild in the society column of a certain newspaper of record that purported (and continues to purport) itself to publish all the news that’s fit to print. The wedding announcement mentioned the decedent’s presence at the wedding, and mentioned that he was the owner of his eponymous business.

    The “punch list” I gave to the taxpayer’s attorney included that item. When I had a follow-up conversation with the taxpayer’s attorney (who, at any given moment, had a handful of cases under audit by the Manhattan District and was not going to ruin his fine reputation), he informed me that upon further investigation, there had been a corporate recast of the business entity some years previously when the decedent retired, by which the business was split between the decedent’s daughter (who was a Estate co-executrix) and the decedent’s son, and that the daughter had contemporaneously bought out the son (who had an international reputation in his own right in his own unrelated profession), thereby leaving the daughter as the sole owner of the business enterprise.

    The issue then became whether the Estate was entitled to one annual gift exclusion because the transaction as a whole was intended as a gift to the daughter, or whether two exclusions could be claimed (one for the son and one for the daughter). The adjusted taxable gifts issue was resolved along with several other matters in the decedent’s financial picture, and the case was closed as agreed.

    • JAMES CREECH says

      That is a great anecdote. One thing that I was unable to fit into the article was how social media is used during settlement negotiations. My hunch (and just a hunch) is that social media is more widely used, as your example from the pre-internet days, to highlight the weakness in a taxpayer’s case and that weak cases tend to settle without trial.

      I also suspect (again a hunch) that there are cases where even though social media evidence may be available, trial level attorneys choose not to introduce it because it would be humiliating to the taxpayer and ultimately humiliating the taxpayer is unproductive because it lessens the benefit of getting your day in Court and leads to less compliance down the road. A pyrrhic victory is not much of a victory in the long run.

      We as tax practitioners are fortunate that while Chief Counsel fights hard they also fight fair (most of the time) and know that the ends do not always justify the means especially when it comes to a pro-se taxpayer and a $2600 underpayment

    • Michael Cash says

      As a revenue officer, I had a case where I was trying to locate the taxpayer. One morning I opened the local paper and found he has been arrested in another part of the state for kidnapping.

Comment Policy: While we all have years of experience as practitioners and attorneys, and while Keith and Les have taught for many years, we think our work is better when we generate input from others. That is one of the reasons we solicit guest posts (and also because of the time it takes to write what we think are high quality posts). Involvement from others makes our site better. That is why we have kept our site open to comments.

If you want to make a public comment, you must identify yourself (using your first and last name) and register by including your email. If you do not, we will remove your comment. In a comment, if you disagree with or intend to criticize someone (such as the poster, another commenter, a party or counsel in a case), you must do so in a respectful manner. We reserve the right to delete comments. If your comment is obnoxious, mean-spirited or violates our sense of decency we will remove the comment. While you have the right to say what you want, you do not have the right to say what you want on our blog.

Leave a Reply to Michael Cash Cancel reply

*