The IRS Wants Smarter Audits. Palantir Could Help Decide Who Gets Flagged

Internal income The department paid Palantir $1.8 million last year to improve a custom tool designed to help the tax agency identify “higher value” cases for audits, collection of unpaid taxes and potential criminal investigations, according to WIRED documents obtained through a public records request.

When the contract was signed, the IRS said it used “more than 100 business systems and 700 methods” built over “decades” to screen for cases in which people may have improperly filed their taxes or owed money to the IRS. As identifying potential tax gaps became more complex, the agency said its systems were becoming increasingly ineffective and it needed to find a solution.

“This fragmented landscape can lead to a number of undesirable outcomes, including duplication of effort and costs, poor understanding of coverage gaps, and suboptimal case selection,” the IRS wrote in a document obtained by WIRED describing the scope of the contract.

The custom tool Palantir created to address the problem, called the Screening and Analysis Platform, or SNAP, is designed to help the IRS streamline how it identifies potential fraud cases. For now, the software is only being used as part of a pilot program, according to the documents. Palantir and the IRS did not respond to requests for comment.

It’s unclear how long Palantir has been working on SNAP, but the IRS has purchased technology the company makes since 2014, according to government procurement records. In total, Palantir obtained more than $200 million in contracts and obligatory payments from the IRS. The documents show that the agency now wants to deepen its relationship with Palantir.

It’s unclear how SNAP might integrate with the IRS’ existing technology systems. Like other Palantir tools, it would likely add to the IRS’s highly fragmented databases and help human auditors identify red flags in tax returns that they might otherwise have missed. The contract says the IRS wants to modernize its software and is looking to Palantir for help. According to one of the documents, Palantir’s SNAP pilot is designed to surface “key information about contracts, vehicles and suppliers” from “unstructured data from supporting documents.”

The IRS asked Palantir to develop three “case selection methods” related to portions of the existing tax code. Options included claims for disaster areas, a form of tax relief for victims of natural disasters, residential credits for clean energy, a tax credit program that offsets the cost of installing items such as solar panels or wind turbines, and the Form 709 tax return, which people may have to fill out when donating valuable items like art, stocks or corporations.

Mitchell Gans, a professor at Hofstra University who specializes in gift and estate taxes, says that if SNAP analyzes unstructured data from vouchers, it could examine forms that provide “adequate disclosure” of assets given to another person. The IRS states that these disclosures must include “a detailed description” of how the value of the property was determined and the relationship between the donor and recipient.

Gans says that if, for example, a person gives someone else a private company, disclosure would require supporting information about how it was valued, such as “balance sheets and statements of net income, operating results and dividends.”

Erica Neuman, a professor of accounting and finance at Youngstown State University, adds that public logs from money transfer apps like Venmo, as well as public storefronts on websites like Etsy and Depop, could also contain unstructured data of interest to the IRS.

If Palantir’s SNAP tool considered data from Venmo or Depop when selecting audit cases, the IRS should already have it. Contract documents say the agency wants Palantir to use only “data that exists in SNAP today.”