The IRS and Palantir’s Partnership in Streamlining Tax Audits
As the complexity of identifying potential tax discrepancies continues to increase, the Internal Revenue Service (IRS) is turning to tech giant Palantir for a solution. The IRS paid Palantir a cool $1.8 million last year to enhance a custom tool designed to aid the agency in identifying “high-value” cases for audits, collection of unpaid taxes and potential criminal investigations. This information came to light following a public request by WIRED, acquiring documents that shed light on the partnership between the IRS and Palantir. The complete report can be found here.
The Need for Improvement
Before the contract was signed, the IRS disclosed that it was using over 100 business systems and 700 methodologies developed over decades to select potential cases of tax misreporting or unpaid taxes. However, the agency also admitted its systems were becoming more inefficient due to the increasing complexity of identifying potential tax discrepancies. It was clear that the IRS needed to find a solution.
Enter Palantir
Palantir’s answer to the IRS’s inefficiency woes was the development of a custom tool named the Selection and Analytic Platform (SNAP). The purpose of SNAP is to streamline the IRS’s process of identifying potential tax fraud cases. Initially, the software will be used as part of a pilot program. While it remains unclear how long Palantir has been developing SNAP, government contracting records show that the IRS has been purchasing technology from the company since 2014, with contracts and payment obligations totaling over $200 million.
Palantir’s SNAP Pilot Program
The IRS requested Palantir to develop three case selection methods that address portions of existing tax law. The options included disaster area claims, a form of tax relief for victims of natural disasters, Residential Clean Energy Credits, a tax credit program that offsets the cost of installing renewable energy solutions, and Form 709 gift tax returns, required when transferring valuable assets like artwork, stocks, or business units.
Understanding the Impact of SNAP
Mitchell Gans, a professor at Hofstra University specializing in gift and estate taxes, explains that SNAP’s analysis of unstructured data from supporting documents could examine forms that allow for appropriate disclosure of the property gifted to another person. Detailed descriptions of the value determination process and the relationship between the giver and recipient are required in these disclosures.
Erica Neuman, a professor of accounting and finance at Youngstown State University, also notes that public logs from money transfer apps like Venmo, as well as public storefronts on sites like Etsy and Depop, could provide relevant unstructured data for the IRS.
Conclusion
While it’s not clear how SNAP will integrate with the IRS’s existing technology systems, the contract indicates that the IRS is interested in modernizing its software. The agency is seemingly committed to its partnership with Palantir in the hopes of achieving more efficient and effective tax audit processes.
