The District has signed two new contracts with a pair of out-of-town technology companies, who it hopes will be able to help the city avoid millions of dollars in fraudulent tax returns this year by leveraging data analytics software.
In 2015, the D.C. tax office caught 25,000 fraudulent tax filings worth roughly 36 million dollars. And this year, the issue of tax fraud will be even greater, head of the D.C. tax office Stephen Cordi told DC Inno, in part because a significant number of District residents were affected by last year's OPM and IRS hacks.
In these data breaches, valuable personal information like social security numbers, dates of birth and current home addresses, were stolen by hackers. Much of this same information can be easily used for tax fraud purposes as well.
"Identity theft is a very lucrative crime ... and we [District of Columbia Office of Tax and Revenue (OTR)] will be doing what we can to stop it here in D.C.," said Cordi.
In an interview with DC Inno, Cordi said that the District has signed a multiyear deal with Colorado-based software consultancy FastEnterprises. And a one year deal has also been formed with New York-based LexisNexis.
Both firms will help the office process millions of tax returns and will effectively compare those information files against an expansive databases of other tax records. The scan, using both national and in-house (D.C.) tax trend data, will be able to find anomalies, notice common fraud patterns, and other potentially dubious elements in local filings.
Cordi explained that in the past his office had used a similar file scanning approach, as it will this year, but they would only compare the information back to a "homegrown database of D.C. information," which held information like individual voter registration files, vehicle registration, withholdings, employment insurance and personal addresses.
FastEnterprises describes it's tax processing software, called GenTax, as such: "GenTax is designed to support configuration of almost all aspects of the system, including returns, letters, penalty, interest, transactions, customer types, workflow, screen layouts, window flow and much more."
Cordi said that FastEnterprises supports the tax processing activities of roughly 20 states across the U.S., in addition to the District. For reference, D.C. gets its individual tax files directly from the IRS.
The service coming from LexisNexis is an automated identity verification system; a technology that confirms the identities of D.C. tax payers by analyzing data inputted against a rubric using the aforementioned databases.
When asked how much money D.C. lost last year in fraudulent tax returns, Cordi said "we don't know what we don't know ... it was significant."
When a specific tax return filing is tagged as being suspicious in nature, the combined software platform sends an alert to the D.C. tax office. From there, the office will, among other things, draft a letter to the D.C. resident that appears (at least according to the filing) responsible for the documentation.
The letter from OTR offers instructions on how to take an "Identity Confirmation Quiz" via telephone. But some D.C. residents, according to Cordi, have been skeptical of this system because they believe the letters are also scam. "We've gotten some resistance," Cordi described.
At the moment, the two new big data deals will only be used to sift through individual tax filings. By end of year, however, OTR will expand the system to also cover corporate tax returns. And by 2018, the plan is to scan D.C. sales taxes in a similar fashion.
