Tax Discovery How To Use It Effectively

Tax Discovery
How To Use It Effectively
Presented By Jeffrey Turrow, PhD
President, TMA, Inc.
___________TMA, Inc.
Turrow / McParlane Associates, Inc.
1633 Erringer Road, Suite 208
Simi Valley, California 93065
USA
Phone: 805.955.9500
e-mail: [email protected]
WEB: www.tmausa.com
TMA,
Inc.
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What is Tax Discovery?
• The Objective:
– “FIND” accounts unknown to the current
database
– Educate, Calculate, Collect, Comply
• The Opportunity:
– Create NEW REVENUE sources
– Generate Avenue for continued
Future Voluntary Compliance
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Inc.
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Universe of Liability
Out- Nexus
In- Jurisdiction
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Inc.
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Inc.
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Typical Tax Gap Make-up
Unknown
27%
Registered
57%
Registered, Non
or Partial
Compliant
16%
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Inc.
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Tax Gap Deficiencies
• Non Awareness by Taxpayer
• Avoidance by Taxpayer
• Complicated Tax Laws
– Non-compliance
– Low/incorrect compliance
– Delinquent
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Inc.
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Avenues to Consider
TMA,
Inc.
• Awareness campaigns
– Multimedia (Rule of Three)
– Mail Campaigns
• Discovery Processing
• Budgeting Concerns
• Resources Available
– Call Campaigns
• Discovery Processing
• Call Center Set-up/Management
• Resources Available
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Avenues to Consider…cont.
• Nexus Development
– Taxpayers generating liabilities within the
jurisdiction of the taxing agency without having a
physical presence
*Outbound Call Campaigns
* Direct Mail Campaigns
* Media Campaigns
Established by:
* Cross-referencing agency records
* Cross-referencing intra/inter-agency databases
* Matching disparate/private database
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Inc.
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• Example of Nexus Processing
– Cross-reference intra-agency databases
– Develop database
Profiling Example
• Size (e.g. 300+ employees)
• Kind (e.g. SIC referencing)
• Revenue (e.g. $20MM+)
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Inc.
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Turning Over Stones
• Identify any and/or all Tax Gap
Deficiencies utilizing thorough due
diligence to analyze current processes
• Use combination of Public records and
Private resources to identify possible gaps
• Re-evaluate current systems to maintain
current profiling information
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Inc.
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Opportunities
• Evaluate current practices to determine how to
handle Tax Gap deficiencies
– New resources
– More resources
– New methodologies
– Re-evaluate Tax law
• Determine available resources for Nexus
compliance and awareness
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Inc.
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Thinking Outside of the Box
Database Warehousing/Profiling
Intra-departmental Comparison
Managed Workflows
Tax Discovery
Internet
Verification
Lack of Resources
Outdated Methodologies
Antiquated Systems
Managed
Web Sites
Enterprise Call Center
Managed
Collection
Services
On-line
Registration
Outsourced Resources
Disparate Legacy Communication
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TMA, Inc.
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Ignorance of the law
is no excuse!
If a Taxpayer is ignorant of the law, it
is most likely the agency who has
failed!!!!
Discovery identifies and educates
those who are not aware?
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Inc.
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What it takes for a
Successful Campaign
•
•
•
•
•
•
•
•
TMA,
Inc.
Specialized Comparative Software
Innovative Investigative Techniques
Intelligent Database Management
Integrated Case Management
Integrated Communications Campaign
Efficient Process Control
Management Know-How and Willingness
Workflow and Managed Methodologies
• Commitment to the Process
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How does Discovery Work?
• Knowledgeable Database Development:
– Combining many and varied databases to create one
unique, clean information source
– Artful, skillful approach
• which databases to tap?
• how to compare?
» identify appropriate data elements
» create useable “fuzzy” search techniques
• how to implement, using both human and technical
resources?
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Inc.
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DISCOVERY PROCESS:
SKILL REQUIREMENTS
• Knowledge of Computer Systems Integration methods
• Knowledge of Artificial Intelligence techniques
• Experience with Investigative Procedures that create the
correct databases for use in an investigative, "discovery"
process.
• Commitment to educate the taxpayer regarding the overall
tax process - create a basis for voluntary compliance in
the future.
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Inc.
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Unsuccessful Campaigns
TMA,
Inc.
• Cause
– Inexperienced management/IT of Discovery
Programs
– Not enough resources
– Ineffective databases
– Lack of intra departmental
communication/cooperation
– Low acceptance level
– Missing “Discovery” steps
– Lack of understanding
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Unsuccessful Campaigns…cont
• Effect
–
–
–
–
–
TMA,
Inc.
Lack of qualified direction
Extreme costly and ineffectual campaigns
Taxpayer distrust and exposure
Motive for Taxpayer reform
Reallocation of qualified resources to handle
menial work
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TMA, Inc.
Discovery Effort –Stepped out
Unqualified
• 300K in universe
• 150K identified as Targets
• 150K mailed
– Materials Cost $1,085,500
– Labor Expense $40,000
• 10% Return @
$400/account = $6MM
• 135,000 to be cancelled
Labor expense to track
Experienced
• 300K in Universe
• 45K mailed
– Materials Cost $1,325,650
– Labor Expense $13,500
• 33% Return @
$400/account = $6MM
• 30,000 to be cancelled
Labor expense to track
5 minutes per account
$25/hr - $125,000
• 20 minutes per account *
$25/hr - $1,125,000
Total results - $4,535,850
Total lost revenue
@$500k/person
1.5 persons - $750,000
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Net $3,785,850
Total results - $3,749,500
Total lost revenue
@$500K/person
21 persons - $10.5M
Net ($6,750,500)
The Process
Discover
Identify
Pursue
EDUCATE
Calculate
Collect
Maintain
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Inc.
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Discovery
– Identify new accounts
– Pursue new/old accounts
– Educate about liability
– Calculate complete tax liability
dynamically
– Collect “new” and/or “delinquent”
– Maintain renewals
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Inc.
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Database Profiling
Business Example
• by Size……...(e.g. 30+ employees)
• by Kind…..…(e.g. SIC referencing)
• by Revenue…(e.g. $5+ million)
• by Location…(e.g. Border businesses)
Individual Example
• By Location……(e.g. Cities, Townships, zip code)
• By Income…….(e.g. $50-$100K)
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Inc.
• By Hobby……. (e.g. Computer, reading)
• By Education ……. (e.g. College Graduate)
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Matching Process
Matching/Un-matching technology
identifies matched and unmatched accounts
based on sophisticated algorithms that
review each account by:
-normalization
-data cleansing
-A/I “fuzzy” sound/phonics
comparing techniques
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Inc.
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Discovery Process Stepped Out
• Develop database for pre-target matching
through knowledge and experience
• Normalize and cleanse pre-target database
• Use sophisticated A/I “Fuzzy”
sound/phonics matching programs to
develop target database
• Develop mail campaign of target accounts
• Use call campaigns to substantiate all
campaigns
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Inc.
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Discovery Process Stepped Out
(Cont.)
•
•
•
•
•
Educate taxpayers of tax liabilities
Develop promise to pay campaign
Pursue collection
Process payments
Track history and renewal
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Inc.
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Identify
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Inc.
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Integrated Database Management
Normalization Process: standardize data
formats
Data Cleansing Process: standardize data
elements
Compare Process: utilize A/I “fuzzy”
sound/phonics techniques
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Inc.
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Normalize Data Formats
–
–
–
–
–
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Inc.
Field Names
Field Lengths
Field Type (numeric, character, date, etc.)
Multipurpose fields
Important Information from target not
mapped on master
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Sample Problem (P O BOX)
P O Box is a very simple address, however as shown
below, there are many ways it can occur. Intelligent
matching algorithms must decipher these differences so
that they compare as equal.
TMA,
Inc.
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•
•
•
•
•
•
Post Office Box 1220
P. O. Box 1220
P.O.. Box 1220
P.O.Box 1220
P O Box 1220
PO Box 1220
POBox 1220
•
•
•
•
•
•
•
Post Office Box #1220
P. O. Box #1220
P.O. Box #1220
P.O.Box #1220
P O Box #1220
PO Box #1220
POBox #1220
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“Clean” Data Elements
– Abbreviations
(LA / Louisiana)
– Streets spelled
(FIRST / 1ST)
– Numbers spelled
(One Wilshire / 1
Wilshire)
– Titles in name
(MR, DR, PHD, CPA)
– Initials in name (Thomas R Rossi/T R Rossi)
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Inc.
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Intelligently Compare the Results
Example: Name
– Misspellings/Phonetic (Smith / Smyth / Smithe)
– Transcription
(Jarrod, Jarnod)
– Connectors
(Bauche & Lomb / Bauche/Lomb)
– Order of words (John J Fogerty / Fogerty John J)
– Extra/Missing
(John J Fogerty / John Fogerty)
– Initial Name
(Dan James Brown, DJ Brown)
– Missing words (GAP / The GAP / GAP on Bree St.)
– Transposition
(Jeffrey, Jeffery)
– Common words (the, and, Auto, Jewelry, Beauty, Inc., Co.)
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Inc.
– Input errors
(Klink / Kink / Klik / Klimk / Klunk)
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Intelligently Compare (cont’d)
Example: Address
–
–
–
–
–
–
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Inc.
Direction
(N,SW / North, South West)
Street type (Road, Avenue, Lane)
Unit
(apt, unit, suite, #)
address range (1210-1240 Bree St.)
near match (1506 instead of 1508)
extra blanks (79 Mint Road)
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Pursue
&
Educate
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Inc.
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Discovery Processing
• Integrated Case Management
–
–
–
–
–
–
–
–
–
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Inc.
Customer Account Profile
Efficient Tracking Device
Permanent Communication History
Permanent Change History
Queue Management
Next Work, Status, Revenue Promised, etc.
Workflow Management
Agency Specific Tax Calculations
A/R Tracking
Promise to Pay Tracking
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Calculate
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Inc.
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Discovery
Tax Calculations
This is an extremely powerful and effective tool
to allow a Tax Specialist immediate at-once
calculation and customer information retrieval
that provides the taxpayer immediate resolve
Result: the Taxpayer receives comfort and
satisfaction provided him with the utmost
customer care while the agency benefits from
receiving immediate effective resolve into
compliance without being bogged down with
continued and long term collection efforts.
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Inc.
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Maintain
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Inc.
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Benefits of Maintenance
Create an atmosphere whereas
the Taxpayer will voluntarily
comply in future years
• Less costly future field audits
• Reduce cost of recovery
• Dramatically decrease Tax Gap
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Inc.
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Do You Have What It Takes????
• Do you have the management expertise to purse a
Tax Discovery program?
• Do you have the right technical staff who can
implement the vision of the management?
• Do you have the staff willing to work outside of
the box and identify problem issues?
• Do you have the resources to handle efficiently
the onslaught of workload?
• Do you have the initial budget to do the program
effectively?
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Inc.
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Options
• In House
– Management team with experience, vision, and
willingness to develop and implement new
methodologies
– Staff willing to work in new methodologies
– Budget to “Get It Done”
TMA,
Inc.
Advantage
Secured control of data
Experienced staff
Cost effective (if experienced resources are available)
NO CONTRACTING!!!!!
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Options….cont.
• Outsourced
– Vendor with experience in the total “Tax Discovery”
package
– Consulting Service to co-manage development of
methodologies
– Complementary data development service
(Data Warehousing)
TMA,
Inc.
Advantage
Experience, Experience, Experience
Cost Effective (especially if Benefits-Based)
State-of-Art Processing
Guaranteed Results
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An Even Playing Field
Reduction on dependency will increase budget,
decrease taxation……application: Communication
Fed
Local
Individual/
Business
Income,
Employment
State
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Inc.
Business, Permit,
Property, Licensing
County
Sales/Use, Income, Permit,
Property, Employment, Asset
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