Data Mining Compliance Initiatives Iowa Department of Revenue Tax Gap Compliance Program MSATA Annual Conference Traverse City, Michigan August 22, 2006

2 Common Data Mining Goals   Optimize revenue - -Identify areas of non-compliance - -Create “smart” audit leads   Improve knowledge base about customers - -Build customer segmentation models - -Determine problem-resolution for non-compliance   Support decision making techniques - -Measure and analyze results - -Obtain answers to critical business questions

3 Data Warehouse Accounts Receivable Receivable Integrate Multiple Source Systems BMF/BRTF IMF/IRTF State Tax Data Tax Data OtherFederalData WorkforceDevelopment OtherState Agency Agency Secretary of State

4 Model Data Using Common IDs State Federal Driver Property Other Tax Tax License Tax State Return Return Data Data Agency SSN SSN SSN SSN SSN FEIN FEIN FEIN FEIN

5 Link Data Using Diverse IDs Employer ID #

6 Match Common Data Across Source Systems State State State Federal Federal Sales Individual Corporation Individual Corporation Gross Sch C Gross Sch C Gross Sales Receipts Receipts

7 Identify Areas of Non-Compliance  Seamlessly match data from multiple data sources  Perform complex analysis Determine filing requirement Determine filing requirement Score and rank (prioritize workload) Score and rank (prioritize workload) Analyze audit results (Return on Investment) Analyze audit results (Return on Investment)

8 Non Filer Program Matches  Federal Returns Filed vs. Iowa Returns (includes IRMF documents)  Iowa Workforce Development vs. Iowa Corporation and Sales Returns  Iowa Partners and Shareholders from Iowa Partnership and S Corp Returns  Iowa Registration Match vs. Corporation, Sales, and Individual Returns  Property Transfers (Sellers) vs. Iowa Returns

9 Filing With Workforce Development But Not IDRF? How many employers are filing unemployment records with Workforce Development, but not filing tax returns? Program Start Date - March 2000 Leads Generated 8,292 Corporation Income Tax 8,292 Corporation Income Tax 3,833 Sales Tax 3,833 Sales Tax 1,723 Retail Sales Tax 1,723 Retail Sales Tax 13,848 Total Leads $ 26,774,000 Taxes Collected (June 06)

10 IA Income Earned From a Partnership or a S-Corp Partnership - Program Started Dec 2001 Leads Generated - 6,100 Individual, 3,090 Corporation Individual Tax Collected - $9,917,267 (June 06) Corporation Tax Collected - $ 876,402 (June 06) S Corp – Program Started July 2002 Individual Leads Generated – 5,400 Individual Tax Collected - $3,922,674 (June 06)

11 Registered, But Not Filing Tax Returns for Other Tax Types How many businesses are registered with IDRF, but not filing tax returns? Program Start Date - March 2000 Leads Generated 999 Corporation Income Tax 999 Corporation Income Tax 1,000 Sales Tax 229 Consumer Use Tax 229 Consumer Use Tax 3,767Individual (started 11/04) 5,995 Total Leads $ 4,598,500 Taxes Collected (June 06)

12 Under Reporter Match Programs  Federal AGI vs. Iowa Net Income  2210 and 2220 Underpayment of Estimate Payments  Federal Refund Add Back on Individual Iowa Return

13 Federal AGI vs. Iowa Net Income  Program started November 2004  Refine information from sources to get the closest match possible on these amounts  Leads Generated – 24,377  Individual Tax Collected - $2,051,860 (June 06)

14 Federal Refund Add Back Federal refunds received by individuals must be reported on the Iowa income tax return.  Program Start Date March 2001  Tax Periods  Refreshed 5 times  Leads Generated – Over 75,000  Average per Tax Year – 15,300  Total Collected - $ 8,735,000 (June 06)

15 Build Reports to Display Query Results for Specific Taxpayers  Name, Address, and TIN Locator Reports using all Data Sources within the Warehouse Various federal information, state tax information and third party sources Various federal information, state tax information and third party sources  Return information (federal and state), payment information, and audit information for a specific taxpayer and specific tax periods  Third party information – example IWD employers  Information views for the various programs – 2210/2220, CP2000, EOAD, Federal Refund Add Back, Partnership/S Corp, and Property Transfer

16 Analyze and Measure Audit Results  What is the ROI for audit program XX from MM/YY to MM/YY?  What are the characteristics of the results of program set XYZ?  What is the % of billing dollars received, adjusted, protested, and outstanding for each audit program?  What is the % and $ of Iowa’s non-compliant population?  Other reports – Monthly – Annual (Fiscal Year) Executive Reports on Hours, Number of Audits, Established and Collected

17 Iowa’s Tax Gap Successes  Optimize Revenues  $69,650,000 since March 2000 (6+ years)  Improve knowledge base about customers  Locator Reports  Support decision making techniques  Key Business Questions  Taxpayer segmentation  Analyze audit results  Measure tax gap

18 Questions? THANK YOU! Linda Ward Tax Gap Program Manager Compliance Division Iowa Department of Revenue Office: