Catching the Fakers US Style

The U.S. Government is getting tough on tax evaders and fraudsters. Like other governments worldwide, it recognizes this is a problem that’s not going away. And it’s not just tax avoidance and evasion on the part of those U.S. citizens and firms with funds in foreign banks and investment houses – in fact they’re now being held to account as a result of the Foreign Account Tax Compliance (FATCA) rules coming into force on 1 July.

No, it’s the billions of dollars being lost every year as a result of more localized criminal activity and tax evasion. For example, according to the Economist it’s estimated that every three seconds, one person in the U.S. falls victim to identity theft (figure from 2012). Having stolen a taxpayer’s identity, the criminal is able to request and receive a tax refund.

This is just one of the many types of tax scam governments must urgently address. Another is under-reported income. I read recently on the AICPA Store that the US Treasury loses $376 billion every year due to inaccurate tax returns that under-report income and overstate deductions and credits. Interestingly, the IRS suggests it is small businesses and high-income individuals that are most likely to under-report income.

Are there lessons that the U.S. can share with, or learn from, other parts of the world in its pursuit of evaders and fraudsters? I believe there is certainly a great example to be had across the pond in the UK’s tax and revenue agency HMRC. Here the agency has adopted a digital analytical approach with an impressive strategic risking tool called Connect.

This tool cross-matches one billion internal and third party data items to uncover hidden relationships across organizations, customers and their associated data links. Suddenly it is possible to identify the mismatches between a person’s reported income and social activity.

This is surely something all tax and revenue agencies should be looking at. 


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