Data Analytics

The biggest innovation has been the application of big data analytics the automated analysis of massive pools of data to modern tax administration. Using data science to drive financial operations has started to change tax administration at the highest levels of government.

The application of big data to tax administration has proven effective at helping tax workers identify fraud and predict noncompliance. But some corporations are struggling to adjust to a world where more data in the form of invoices, custom declarations and account statements is demanded of them than ever before.

Data Science and Taxes

The use of computers to fight tax fraud is nothing new the IRS has used computers since 1962. The use of big data analytics, however, is a new development. The strategy seems to be working despite staff reductions and a budget that has been reduced every year since 2011, the IRS reported a 400 percent increase in fraud detected and 1,000 percent more in proceeds received from the prosecution of criminal fraud.

The IRS is drawing data from sources that weren’t accessible or available in the past. The government service is mining data from social media accounts to help create taxpayer profiles upon which analytics are performed and which may be used to detect fraud during tax season. Information from social media posts and profiles, along with data pulled from other sources and the IRS’s archive of tax returns, is used to determine the likelihood that a given person won’t comply with tax law.

Big Data and Corporate Taxes

As part of the push to use more and more data to prevent fraud and collect taxes, tax authorities are asking for more information from corporations. While doing so, these authorities are also standardizing how they receive data like client and vendor invoices, customs declarations and bank statements. This can present a problem for corporations, whose tax and financial data is often spread across multiple systems and formats.