The Internal Revenue Service is tracking huge amounts of information on taxpayers’ digital activities on the internet.
As we all know, the government spends a lot more money than it takes in, and this is increasing the pressure on the IRS to go out and collect more money from the taxpayers. It is estimated that they could collect up to $300 billion of additional revenue that is lost to errors and income tax evasions each year.
The difference between what they actually collect and what they believe they should be collecting is known as the “tax gap.”
In order to close this so-called tax gap, the Service is gathering tremendous amounts of on-line data and using “robo-audits” to informally audit tax forms and third-party data. The Service is gathering data on virtually everything, including Facebook posts, e-Bay auctions, credit card transaction records, and e-commerce payments.
So far, most of this is going on under the radar without much public comment. That may change when the new IRS chief comes before the Senate for approval. Currently, the acting commissioner is Steven T. Miller. He replaced Douglas Shulman last November. Edward Zelinsky, a tax professor at the Cardozo School of Law at Yale, states, “I am sure people will be concerned about the use of personal information on data bases in government, and those concerns are well taken. There should be safeguards.” He further states, “Taxpayers should know that whatever people do and say electronically can and will be used against them in IRS enforcement.” By now, most Americans are aware of internet “cookies” that track what they do on the internet and send targeted ads that follow them to different web sites. What taxpayers may not know is that the IRS has now brought in private industry experts to use similar digital tracking. The IRS has the added advantage of having access to more information like your Social Security number, your health records, and credit card transactions. Dean Silverman is a high ranking executive with the IRS who was recruited from the private sector to deal with these tech issues. He states, “Private industry would be envious if they knew what our models are.”
In documents released to the public, the Service has said it will use massively parallel computer systems that can analyze data from different networks to find suspicious activities. Most of this work is automated so the IRS can process and analyze electronic tax returns with “robo-audits” that flag unusual or suspicious behavior. Keep in mind the IRS budget is being cut, so staff will be reduced but the Service will rely more and more on computer generated audits.
Here is what the Service has stated they are planning on doing in various presentations:
1. Charting and analyzing social media like Facebook, Twitter, and Google Plus.
2. Tracking internet addresses and e-mailing patterns.
3. Analyzing relations based on Social Security numbers and other personal numbers.
4. Statistical modeling
5. Machine learning across neural networks (don’t ask me what that means; that’s just what they are reporting).
6. Sorting data through one million unique attributes
7. Targeting audits by matching tax filings to social media and/or electronic payments.
In summary, former commissioner, Douglas Shulman, made a statement not long ago that the technology will employ “billions of pieces of data” to target enforcement and to “detect and combat non compliance.”