IBM Announces Advanced Analytics to Help Revenue Agencies Optimize Tax Auditing Process

IBM Announces Advanced Analytics to Help Revenue Agencies Optimize Tax Auditing Process

IBM today announced a Tax Audit and Compliance Solution that uses advanced analytics to help revenue agencies zero in on questionable tax returns. The solution is currently being used by U.S. state revenue agencies as well as international government agencies. By providing a more scientific, data-driven approach to tax audit case selection, the Tax Audit and Compliance Solution goes well beyond existing methods of tracking tax compliance, which range from manually matching internal data with lists of taxpayers to using data warehouse and query tools. By identifying possible compliance problems at the time a tax return is filed, the solution, which is capable of data mining thousands of tax returns in seconds, can potentially help save years of tracking, investigation and collection costs.

Developed by IBM scientists, the solution uses algorithmic data mining and predictive modeling to compare individual taxpayer behaviors to those of similar taxpayers. The resulting analysis helps agencies to detect new tax evasion methods and provides auditors with lists of potentially fraudulent tax returns.

According to the U.S. Internal Revenue Service, today’s tax agencies typically lose more than 15 percent of total revenues to under reporting, tax evasion and other types of noncompliance — known as the “tax gap.” Using broad criteria for audit selection has also led to a significant loss in revenue opportunities, and almost 20 percent of all audits currently result in no change to the amount of tax due. These “no-change” audits waste valuable staff time and resources on investigations of taxpayers who are ultimately found to be compliant.

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