Tough Times for the IRS RoboCop

NEW YORK (MainStreet)—A controversial software that the IRS has been employing recently in its efforts to close the estimated $300 to 400 billion "tax gap" (due to evasions and errors in tax filings) has become part of the larger debate triggered by NSA whistleblower Edward Snowden on government overreach into individual privacy. For an organization still reeling from acting IRS chief's Steven Miller's forced departure on account of unfair targeting of conservative organizations, the timing could not have been worse.

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Dubbed the "robo-audit", the IRS has spent close to $1 billion on software that trawls a person's social media interactions, credit card purchases, online purchases, and mobile phone usage to flag mismatches between real world behavior and what's on the tax return, thereby automatically triggering an audit.

Imagine you claimed some business expenses involving travel while the Facebook timeline of yours shows you relaxing at home with the dog. That could get you in trouble with the new IRS Robocop, or at least that's what many tax attorneys would like you to believe.

The rise of the robot-audit can be attributed in part to the desperation of the fiscal situation – manifested in unprecedented occurrances like the sequestration. The rest can be attributed to technology and the unprecedented computing capability that the IRS now has at its command. With 80% of the 250 million tax returns being filed electronically, the IRS now has software that can sift through all this data in 10 hours compared to the few days that it took earlier. As a government agency, the IRS has access to sensitive personal information like Social Security numbers, which it is now able to marry with real-time access of people's online activities and credit card transactions.

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