IRS Use of Big Data Leads to 400% Increase in Detection of Tax Fraud by Criminal Investigation Division

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IRS detection of tax fraud is up nearly 400%, largely from its use of data analytics.  According to its recent report, the IRS Criminal Investigation Division identified nearly $10 billion in tax fraud in 2018—an increase from the $2.5 billion it identified in 2017. The Criminal Investigation Division also detected nearly 1,000% (yes, 10 times) more dollars from other financial crimes compared to its prior year activities. What does it mean? The IRS Criminal Investigation Division has become much, much more efficient and effective at ferreting out complex tax fraud given its increasing use of data analytics.

The IRS is citing the use of data analytics as a powerful tool for identifying tax noncompliance and as a key driver behind the vast strides that it has made in the detection of tax fraud.  With improvements like those noted above, the IRS’s use of big data analytics is likely to only increase. In fact, we are almost certainly only seeing only the tip of the iceberg in this movement.

The improvements in the IRS’s technological infrastructure will be further enhanced by international relationships like the Joint Chiefs of Global Tax Enforcement, (see our prior post) a joint effort by the United States, UK, Canada, Australia, and the Netherlands to share information and conduct joint investigations in order to “reduce the growing threat posed to tax administrations by cryptocurrencies and cybercrime.”

The improvements in the IRS’s ability to detect tax fraud–based upon its improved use of big data–are rather remarkable.  They point towards a more efficient and effective Criminal Investigation Division that is likely to only increase its use of big data analytics in the future.


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