Avoiding the IRS? Don't Use PayPal

Those suspected of using PayPal to avoid the Internal Revenue Service will soon risk having their accounts searched by the agency thanks to a recent court ruling. A U.S. District Court judge in San Jose, Calif., has ruled that under certain conditions it would be legal to access an individual's PayPal account.

While the ruling was handed down in February, the Justice Department said it had decided not to disclose it publicly until a press briefing earlier in the week.

The decision builds upon a larger program by the IRS to crack down on tax evaders. The government is attempting to gain information on bank accounts in foreign countries where laws allow account holders to hide income that is taxable within the United States.

The Internet has become a new method through which the IRS is attempting to track down those who are failing to pay taxes. The agency several years ago attempted to find those who may be attempting to skirt the law by monitoring their search queries.

In order for the IRS to be permitted to search PayPal records, three requirements must be met. First, there must be a belief that the account holder is attempting to evade tax laws. Second, that person must be under investigation, and finally, permission would only be granted if the IRS could not easily obtain the information otherwise.

eBay, which owns Paypal, was not immediately commenting on the situation.