By Ken Berry

The IRS is watching you.

According to news reports filtering out of Washington, the IRS will begin employing new technology this year that can track a taxpayer's online activities ranging from Facebook and Twitter posts to credit card and PayPal transactions. The nation's tax collection agency hopes the data will help it hunt down tax cheaters as part of ongoing efforts to close a $385 billion tax gap. But the IRS isn't saying – at least not yet – how the "robo cops" will work or how it intends to use the information (see sidebar).

Naturally, this latest development, which smacks of "Big Brother" envisioned in the book 1984, is causing some concern among government watchdogs and other taxpayer advocates. Congressional staff sources say the use of taxpayer data could become a key issue when the next IRS commissioner is anointed. Currently, Steven Miller is serving as acting commissioner in the stead of Doug Shulman, who stepped down in November.

The new technology resembles the Internet "cookies" that track movements of consumers and target them for advertisements. The IRS assembled a team of experts from the private sector to help develop a system with similar digital tracking. But the IRS has an added advantage of being able to access Social Security numbers, credit card transactions, and other confidential information that is otherwise protected.

The IRS already processes and analyzes electronic tax returns to flag unusual behavior patterns which can lead to audits. Due to reductions in IRS staff mandated by the sequester, you can expect the IRS to step up its reliance on such computer-generated audits.

The tech geeks aren't shy about the prowess of the new system. "Private industry would be envious if they knew what our models are", Dean Silverman, the head of the group assisting the IRS, has been quoted as saying in trade publications. In other presentations and public documents, the IRS acknowledged that its system can analyze data from different networks to identify irregularities and pinpoint suspicious activities.

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