The IRS’s Use of Data Analytics to Combat Tax Evasion

The IRS understands that the tax code is long and confusing. Therefore, the agency is willing to cut people slack if they make an honest mistake on their taxes. This reasonable attempt to comply with tax code is not a crime but referred to as negligence. However, tax evasion – willfully not paying a tax liability – is illegal. People try to avoid paying taxes by underreporting or omitting income, claiming false deductions and credits, concealing assets or improperly claiming tax credits or exemptions.

The IRS conducts investigations into alleged tax code violations through its IRS Criminal Investigation Division (IRS-CI). The IRS is committed to making the most effective use of their resources to ensure compliance with the tax code.

Fraud detection ramps up

The IRS-CI’s increased use of technology has gathered an unprecedented amount of data via various sorts of online footprints. The use of sophisticated data analytics is yielding big results in tax fraud detection.

The IRS-CI identified nearly $10 billion in tax fraud in 2018. This is an increase from $2.5 billion in 2017. They also found $10.4 billion in other financial crimes, a sharp increase from the $1.1 billion detected in 2017.


IRS uses compliance checks as a taxpayer accountability tool. They are used to determine whether an individual or organization is adhering to recording keeping and information reporting requirements. They can be done as often as circumstances warrant. The IRS is increasing focus on the following areas of tax noncompliance:

  • Cryptocurrencies
  • Abusive tax schemes
  • Employment tax fraud
  • Abusive tax return preparers
  • International tax enforcement

By using high-tech investigative methods, IRS agents are adept at recognizing noncompliance. In 2018, the IRS-CI had a conviction rate of 91.7%.

Tax evasion is a federal offense. While the IRS reserves the right to prosecute those who do not file or pay taxes, they encourage individuals to be proactive in coming forward as to avoid criminal violations. The punishment for those found guilty varies depending on the nature and severity of the tax evasion. The IRS can impose jail time, hefty fines or both.

Tags: Blog, Tax Evasion