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How smart technology helps local governments target tax fraud

Submitted by kevin ebi on January 7, 2015

When your city is short of cash and raising taxes just isn’t an option, what can you do? Some cities are getting the money they need by doing a better job of collecting the on the taxes they already collect. And technology is making it easier to for cities to find tax cheats and to get them to pay.

Image removed.There have been easy opportunities for tax cheats. Tax codes are rarely simple or truly flat. Well intentioned exceptions are designed to help citizens or businesses who meet various criteria.

And there’s where the cheaters find their opportunities. It’s burdensome for taxing agencies to determine who truly qualifies, especially when tax codes continue to grow and enforcement resources are cut.

But technology is helping cities and counties turn the tide.

County uncovers nearly $10 million in lost taxes
Cook County in Illinois is one of those that has seen its technology investment pay off. Like many, the county offers property tax exemptions to senior citizens, but has mainly relied on property owners to tell it when those exemptions no longer apply.

It turns out that when the senior property owner dies, the county often didn’t know about it. Through an analysis earlier this year, it found $9.4 million in property tax revenue through fraudulent exemption claims. It has already collected more than $5 million of that. Most of the rest is currently going through an appeals process.

Cross-checking other records
Cook County found the extra revenue by using LexisNexis to cross-check its property tax records with public databases, including death records. The county phased in the analysis, starting with exemptions for seniors and ineligible parking spaces and expanding to include a comprehensive analysis of each parcel searching for key fraud indicators. So far, the county has collected about four times as much as it spent on the analysis.

The county is also far from unique. Delaware County in Indiana uncovered about $1.5 million in lost tax revenue a few years ago shortly after launching a similar program. It found about 1,000 property owners were falsely claiming exemptions and is now going after back taxes and assessing penalties.

Integration is key
Tax cheats have traditionally gotten away with it because government systems don’t talk to each other. This is where many of the technology advancements are being made.

Council Associate Partner Oracle helps address this with Oracle Enterprise Taxation and Policy Management for Local Governments, which, among other things, gives taxpayers a single record. In addition to helping cross-reference accounts, it also ensures that a taxpayer who is behind on one account doesn’t get a refund from another.

Council Lead Partner IBM, meanwhile, has launched its Smarter Counter Fraud initiative. This allows government agencies to use big data and analytics to pinpoint tax fraud.

While the new technology does help to automate the identification of fraudulent accounts, it’s important to remember that it still may take staff time to investigate and follow up. Integrated systems and cross-referencing other data sources, though, help enforcement staff make better use of their time and available resources, and give cities much-needed revenue.


Kevin Ebi is a staff writer and social media coordinator for the Council. Follow @smartccouncil on Twitter.

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