CPAs are increasingly using technologies in new ways in their practice. Data mining and data analysis are two applications that have been particularly hot as of late. Interestingly, CPAs aren't the only ones taking advantage of these advances in technology. Taxing authorities are also doing so.

There was an article in BusinessWeek online that pointed out that the Texas Comptroller's office suspected Texans were buying private planes out of state to dodge sales taxes. So the agency installed technology that matched federal airplane registrations with state tax records, and that quickly resulted in the collection of $5 million in unpaid taxes from 43 Texans. The same article indicates California used technology to identify 600,000 non-filers, and collected an extra $184 million in one year.

On the same day that I saw that article, there was a press release in which IBM announced that it was offering advanced analytics to help revenue agencies optimize the tax auditing process. One of IBM's boasts is, "By identifying possible compliance problems at the time a tax return is filed, the solution, which is capable of data mining thousands of tax returns in seconds, can potentially help save years of tracking, investigation and collection costs." The IBM Tax Audit and Compliance Solution can be installed at the tax agency site, or it can remain on IBM computers with IBM consultants performing analyses on behalf of the agency.

As the costs come down on these data-mining applications, more and more tax agencies will be using them. If you combine that with more and more information on individuals and businesses being deposited in electronic databases, I would expect states will really be looking for increased revenue from their auditing of returns and their efforts to thwart tax avoidance.

As with anything else technological, this is a double-edged sword, and it sure looks like state taxing authorities agree and are taking advantage of it.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access