The Use of Big Data Analytics by the IRS: What Tax Practitioners Need to Know

Houser, Kimberly and Sanders, Debra, The Use of Big Data Analytics by the IRS: What Tax Practitioners Need to Know (February, 2018). Journal of Taxation, Vol. 128, No. 2, 2018. Thomas Reuters/Tax & Accounting.

16 Pages Posted: 1 Mar 2018 Last revised: 7 Sep 2021

See all articles by Kimberly Houser

Kimberly Houser

Ostrom Workshop on Data Management and Information Governance, Indiana University; Digital Democracy Lab, William & Mary Law School

Debra Sanders

Washington State University

Date Written: February 8, 2018

Abstract

With the budget reductions and losses in staff over the past several years, the IRS has been forced to do more with less. In turn, the IRS has turned to big data analytics make up for its loss of personal and the impact of the budget reductions. In 2011, the IRS created the Office of Compliance Analytics in order to create analytics programs that could identify potential refund fraud, detect taxpayer identity theft, and become more efficient in handling noncompliance issues. The IRS uses a wide range of analytic methods to mine public and commercial data including social media sites such as Twitter, Facebook, and Instagram. The data collected from this mining is combined with IRS’s own proprietary information and analyzed using pattern recognition algorithms, which help to identify potential noncompliant taxpayers. The current ability to continuous monitor financial and personal behavior facilitates the building of exhaustive histories of individuals. Knowing that the IRS is utilizing public internet data from websites such as Facebook, taxpayers should consider that their posts could impact their probability of audit.

Keywords: big data, IRS, privacy, audit, predictive analytics, algorithms, tax

Suggested Citation

Houser, Kimberly and Sanders, Debra, The Use of Big Data Analytics by the IRS: What Tax Practitioners Need to Know (February 8, 2018). Houser, Kimberly and Sanders, Debra, The Use of Big Data Analytics by the IRS: What Tax Practitioners Need to Know (February, 2018). Journal of Taxation, Vol. 128, No. 2, 2018. Thomas Reuters/Tax & Accounting. , Available at SSRN: https://ssrn.com/abstract=3120741

Kimberly Houser (Contact Author)

Ostrom Workshop on Data Management and Information Governance, Indiana University ( email )

Indiana University
Bloomington Indiana, IN
United States

Digital Democracy Lab, William & Mary Law School

PO Box 8795
William and Mary Law School
Williamsburg, VA 23187
United States

Debra Sanders

Washington State University ( email )

1812 E. McLaughlin Blvd.
Vancouver, WA 98663-3597
United States

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