IRS Probes PayPal for Tax Evadors

SAN JOSE, Calif. — The Internal Revenue Service thinks potentially hundreds of people are using eBay’s PayPal service to evade paying income taxes, and have asked a federal judge for access to the company’s customer service records to help prove it.

According to court documents filed in the case, the IRS believes people are transferring money through PayPal into foreign banks, using bank secrecy laws in other countries to hide their income.

“This case is not only important to the administration of tax laws, it may have significant impact upon the public fisc,” read the court papers, filed earlier this week.

Investigators admit they don’t yet know the extent of the income abuses perpetuated through PayPal, but federal estimates suggest roughly $40 billion a year is lost through scams involving credit cards linked to foreign banks.

Representatives at PayPal would not comment on the case, but the company has a history of cooperating with law enforcement.

Last September, after government pressure, PayPal announced plans to levy steep fines against customers who use its services for transactions related to porn or Internet gambling.

PayPal distanced itself from the porn and gambling industries shortly after it was acquired by eBay in 2002. Starting Sept. 24, the company began imposing fines against individuals for up to $500 for all gambling and porn transactions.