The IRS Seeks More Effective Audits: Palantir May Assist in Identifying Target Cases.

The Internal Revenue Service paid Palantir $1.8 million last year to enhance a custom tool aimed at assisting the tax agency in pinpointing the “highest-value” cases for audits, collection of unpaid taxes, and possible criminal inquiries, based on documents obtained by WIRED through a public records request.

Upon signing the contract, the IRS noted that it was relying on “more than 100 business systems and 700 methods,” developed over a span of “decades” to determine cases in which individuals may have misreported their taxes or owe money to the IRS. As the challenge of identifying tax discrepancies became more intricate, the agency admitted that its systems were becoming less effective and necessitated a new solution.

“This fragmented landscape can lead to a number of undesirable outcomes including but not limited to duplication of effort and cost, poor understanding of gaps in the coverage, and suboptimal case selection,” the IRS stated in a document acquired by WIRED that details the contract’s scope.

The custom tool developed by Palantir to tackle these issues, known as the “Selection and Analytic Platform,” or SNAP, aims to streamline how the IRS detects potential fraud cases. Currently, the software is being utilized only in a pilot program, as per the documents. Neither Palantir nor the IRS responded to requests for commentary.

It remains unclear how long Palantir has been engaged with SNAP, but government contracting records indicate that the IRS has purchased technology from the company since 2014. In total, Palantir has garnered over $200 million in contracts and obligations with the IRS. Documentation suggests the agency is keen on strengthening its partnership with Palantir.

The exact integration of SNAP with the IRS’s existing technology ecosystems is not specified. Similar to other Palantir tools, it would likely overlay the IRS’s fragmented databases, aiding human auditors in spotting potential red flags in tax filings they might otherwise overlook. The contract reveals that the IRS is interested in modernizing its software with Palantir’s assistance. One of the documents states that Palantir’s SNAP pilot aims to extract “key information about contracts, vehicles and vendors” from “unstructured data from supporting documents.”

The IRS has requested Palantir to develop three “case selection methods” pertaining to various sections of the current tax code. These include claims related to disaster zones, a form of tax relief for victims of natural disasters, Residential Clean Energy Credits, a tax credit program that mitigates the costs of installing items such as solar panels or wind turbines, and Form 709 Gift Tax Returns, which individuals may need to complete when transferring valuable assets like artwork, stocks, or corporate entities.

Mitchell Gans, a professor at Hofstra University specializing in gift and estate taxes, notes that if SNAP is analyzing unstructured data from supporting documents, it might be scrutinizing forms that offer “adequate disclosure” of properties being gifted to another party. The IRS mandates that these disclosures must provide “a detailed description” of how the property’s value was assessed and the relationship between the giver and recipient.

Gans explains that if, for instance, an individual transfers a private business, the disclosure would require supporting documentation about its appraisal, such as “balance sheets and statements of net earnings, operating results, and dividends.”

Erica Neuman, an accounting and finance professor at Youngstown State University, adds that public records from money transfer apps like Venmo, along with public storefronts on platforms like Etsy and Depop, could also harbor unstructured data of interest to the IRS.

If Palantir’s SNAP tool were to incorporate data from Venmo or Depop when determining audit cases, the IRS would need to have that data already. The contract documents specify that the agency intends for Palantir to utilize only “existing data in SNAP today.”