Ebay owned online money trasfer service PayPal has some 100 million users world-wide. Over $27.5 billion worth of transactions were executed through Paypal in 2005. And some of this "offshore income" was never declared to the local government to avoid paying taxes.

However, it may soon become more difficult to use Paypal to hide offshore income. The IRS wants to find tax evaders who are using PayPal to illegally transfer money. It has already asked PayPal to turn over information (covering transactions occurring from 1999 through 2004) about people who might be evading taxes by hiding income in other countries.

IRS is looking for account information for American taxpayers who have bank accounts, credit cards or debit cards issued by financial institutions in more than 30 countries reputed to be tax havens. The IRS said many of those taxpayers access their money through credit and debit cards.

In some cases, the IRS obtained credit card numbers but could not identify the cardholder. The IRS said PayPal might be able to lead the tax agency to those individuals. The IRS also hopes PayPal can help them identify currently unknown taxpayers' and their payment cards, as well as offshore bank accounts, that might be evidence of tax evasion.

Source: USA Today