Interesting article this afternoon on Bloomberg:  IRS Reviews PayPal Purchase Records to Find Offshore Accounts, by Ryan J. Donmoyer:

The IRS is examining some electronic-payment transactions processed by EBay’s PayPal unit to find U.S. taxpayers who keep unreported income in offshore accounts, officials said.

The U.S. District Court for Northern California granted the government’s request to obtain information on transactions conducted by an undetermined number of PayPal users since Jan. 1, 1999. The court motion was filed by the IRS division in charge of auditing small businesses and is related to a four-year effort to detect tax evasion by Americans who use credit cards to access accounts in tax havens. "PayPal’s money transfer system allows users to avoid traditional banking methods such as a bank-initiated wire transfer, thereby evading the required payments of federal taxes on those monies held in foreign bank accounts," Judge James Ware wrote in a February ruling that had gone unnoticed until Eileen O’Connor, assistant U.S. attorney general for the Justice Department’s Tax Division, mentioned it in a news conference today.

Update:  Associated Press story.