g510-6079-increasing-tax-rev-through-imrpov-audit-compliance

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IBM Global Business ServicesIBM Global Business ServicesCenter for Business OptimizationIncreasing tax revenues through improved auditing and complianceIBM Tax Audit and Compliance SystemToday’s tax agencies typically lose 10–15 percent of total revenues to tax evasion and other types of noncompliance 1— known as the “tax gap.” At a time when tax evasion techniques have grown more sophisticated, agencies have simultaneously been hit with a cascade of budgetary and staffing restrictions, continually changing tax statutes and more rigorous requirements for privacy. As a result of these pressures, many agencies continue to rely on audit selec-tion, tax collection and enforcement methods they know to be outdated. These include traditional “pay-and-chase” strategies, in which taxpayers suspected of underreport-ing their tax liability are pursued and investigated several years after the first incidence of suspicious behavior. And often case priority is assigned on the basis of dollar value alone. When there is a focus on high-value cases for a relatively small number of taxpayers, agencies can lose significant revenue opportunities. Using broad criteria for audit selection has also led to almost 20 percent of all audits resulting in no change to 2the amount of tax due. “No-change” audits expend valu-able staff time and resources to investigate taxpayers who are ultimately found to be compliant. Additionally, audi-tors often are unaware of the ...

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• Publié par: Maceb
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• Langue: English

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IBM Global Business Services

Increasing tax revenues through improved auditing and compliance

IBM Tax Audit and Compliance System

Center for Business Optimization

The IBM Tax Audit and Compliance System enabled a single audit program within a state agency to realize more than US$30 million in additional revenues in one year.

Today’s tax agencies typically lose 10–15 percent of total revenues to tax evasion and other types of noncompliance 1 — known as the “tax gap.”At a time when tax evasion techniques have grown more sophisticated, agencies have simultaneously been hit with a cascade of budgetary and staffing restrictions, continually changing tax statutes and more rigorous requirements for privacy. As a result of these pressures, many agencies continue to rely on audit selec- tion, tax collection and enforcement methods they know to be outdated. These include traditional “pay-and-chase” strategies, in which taxpayers suspected of underreport- ing their tax liability are pursued and investigated several years after the first incidence of suspicious behavior. And often case priority is assigned on the basis of dollar value alone. When there is a focus on high-value cases for a relatively small number of taxpayers, agencies can lose significant revenue opportunities.

Using broad criteria for audit selection has also led to almost 20 percent of all audits resulting in no change to 2 the amount of tax due.“No-change” audits expend valu- able staff time and resources to investigate taxpayers who are ultimately found to be compliant. Additionally, audi- tors often are unaware of the information that was used to initially select the case and may waste a great deal of time by focusing their audit research in the wrong areas. To address these issues, IBM has developed the IBM Tax Audit and Compliance System, a comprehensive, inte- grated solution designed to improve auditor productivity and increase tax revenues.

Predicting noncompliance The Tax Audit and Compliance System is a powerful, sophisticated solution that can be configured to meet a given agency’s particular compliance needs. It helps improve the compliance process in two important ways:

•First, when applied at the time a tax return is filed, the system can promptly identify compliance problems, helping to save years of tracking, investigation and collection costs. Using data mining techniques and business rules, it compares individual taxpayer behaviors to those of similar taxpayers, predicts the likelihood of noncompliant activity, prioritizes the “next best case” for selection and triggers downstream work- flow processes.

•Second, the system advances traditional compliance methods by using a more scientific, data-driven approach to audit selection. Beyond simple edits and matching, it uses advanced analytics, such as risk modeling, data mining and data visualization, to determine the likelihood of noncompliance.

Both approaches are designed to give auditors and agents a clear indication of why a taxpayer has been flagged, so they know what to look for in an audit and can use their time more efficiently.

Getting the right case to the right person at the right time Once potential offenders are identified, audit managers can assign cases based on the skills and experience of each auditor. Because tax evaders can be pursued at the first sign of trouble, agencies typically see a return on their investment within one year. And by reducing the number of no-change audits, as well as the length of the audit pro- cess, the Tax Audit and Compliance System can enhance auditor productivity. Finally, when taxpayers understand that their returns will be quickly and scientifically analyzed,

3 voluntary compliance rates may rise,which could help agencies avoid costs and further improve revenue collections.

Turning analytics into action Designed for and with tax auditors to help them perform complex tasks quickly and more precisely, the IBM Tax Audit and Compliance System stands out in its field. Unlike some competing solutions, it does not require an advanced degree in statistics to use, and it gives auditors the power to experiment and build new compliance models as tax- payers find innovative and creative ways to evade taxation.

The IBM Tax Audit and Compliance System is part of the IBM Center for Business Optimization solutions portfolio. The IBM Center for Business Optimization brings together IBM’s industry and process expertise, hardware and busi- ness performance software, and the company’s deep computing and advanced analytics capabilities to tackle our clients’ most difficult business challenges. In addition to the area of risk management optimization, the center offers solutions in the areas of marketing investment mix, dynamic pricing and complex supply chain optimization.

IBM technologies have enabled the evolution of new and sophisticated methods for managing tax compliance.

Simple Edits and Matching

Data Warehouse & Query Tools

•Internal & external •Data from internal (limited) sources systems •Complete IRS data •Limited IRS data •Single view of taxpayer •Manually working list of taxpayers •Some automation of desk audit cases •Reliant on IT •Reliant on IT

Integrated Case Management

•Automated case creation (desk and field) •Link to data warehouse •Reliant on IT

Compliance Data Mining

•More scientific data-driven approach to case selection •Scoring, ranking, and clas- sifying taxpayers based on behavior •Discovering new patterns of non-compliance •Interactive access to and analysis of tax data •Auditor/Collector-oriented tools independent of IT

Predictive Compliance

•Case selection at time of returns processing •Predict fraud based on historical behavior •Early detection of devi- ant non-compliant trend •Strong voluntary com- pliance effect •Independent of IT

For more information To learn more about IBM Global Business Services, contact your IBM representative or visit:

ibm.com/bcs

To learn more about the IBM Tax Audit and Compliance System and the IBM Center for Business Optimization, visit: ibm.com/services/cbo

References 1  Brown,Robert E., and Mark J. Mazur. “IRS’s Comprehensive Approach to Compliance Measurement.” Internal Revenue Service, June 2003, pp.4-5.

2  Brown,Robert E., and Mark J. Mazur. “IRS’s Comprehensive Approach to Compliance Measurement.” Internal Revenue Service, June 2003, p.12.

3  Brown,Robert E., and Mark J. Mazur. “IRS’s Comprehensive Approach to Compliance Measurement.” Internal Revenue Service, June 2003, p.11.

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