We live in a new age of information and the IRS is ramping up to take full advantage of big data to help with the collection of taxes and pursuit of tax cheats. Most of this information appears to be coming from online sources, such as Facebook, eBay, eCommerce, and credit card usage. However, the IRS has also made it clear that, in certain circumstances, it will also investigate personal emails.
The IRS will encounter problems trying to capture, integrate, and analyze this vast wealth of additional data. However, should the IRS overcome these obstacles, it should go a long way to helping them bridge the estimated $300 billion annual gap in lost tax revenue.
There has been very little discussion about the extra information that the IRS is now collecting. The typical taxpayer is generally unaware of the new data powers that the IRS is incorporating into its monitoring and enforcement processes. There has been little discussion and no public outcry on privacy issues.
It appears that, although the data is available to the IRS, and has been used in some circumstances, it is generally only being used in situations where irregularities have already been detected in returns. Furthermore, the IRS is taking great pains to ensure that the information is not specifically used to target particular groups of high-risk individuals. The IRS National Taxpayer Advocate has already demanded that the IRS provides details of exactly what data is being used, but the IRS has responded that such information could detract from its enforcement operations.
Many systems are already in place for the IRS to use this big data to track individual internet usage patterns that could identify potential tax evaders. Additionally, it is already believed that the systems are being used to analyze tax returns for specific patterns and flag them for real-time, electronic audits.
These measures will, of course, target primarily low and medium income individuals, households, and businesses. The high earning tax evaders will continue to operate their own tax dodges, which are difficult to detect and expensive to investigate.