State's new technology gathers information to find tax cheats
By linking to databases, individuals can be profiled
If you get the urge to fudge a bit on your taxes
this year because you think, "Who's going to notice?" think again. The state Revenue Department is watching. The agency has launched a technology offensive with the goal of pulling together stray bits of information about every Massachusetts taxpayer, searching for clues that would indicate who isn't paying the taxes they owe.
State officials dismiss the notion they are playing Big Brother, but the potential is rather Orwellian. In theory, said Revenue Department Commissioner Alan LeBovidge, the state may eventually be able to track down so much information about a resident's finances that the state, rather than the individual, could complete the individual's tax return.
"This is not something that's going to go away. It's only going to grow," LeBovidge said. "The world is shrinking. There's fewer and fewer places to hide."
The initiative, dubbed "Discovery" by agency officials, is currently bringing in an additional $1 million in tax revenue a week. The Revenue Department has spent about $3 million over the last two years on the program, which has generated a total of $43 million in new tax revenue and $6 million in refunds. (Yes, the system identifies overpayers, too.)
It works by linking information the state has on each taxpayer to more than a dozen public databases to complete a financial puzzle, piece by piece, about each individual. The databases have been around for years, but new technology is allowing the state to assemble and review the information in a time-efficient manner.
The amount of data involved is enormous. LeBovidge said it took 18 months for the Internal Revenue Service to develop one of the databases the state uses; it took the state two months just to load the database on its computers.
"It takes time to pull these systems together, but new technologies and the price of technology have gotten to the point where you can really do some neat stuff," said Verenda Smith of the Federation of Tax Administrators in Washington, D.C. She said Massachusetts is at the forefront of the technology revolution.
Paul Panariello, a cofounder of Revenue Solutions Inc. in Pembroke, which developed the Discover Tax software Massachusetts is using, said the scrubbing of databases has been very effective in tracking down the biggest drain on the state's tax income: individuals who owe taxes but don't file returns.
"Those people are not going to tell you anything, so you've got to put together pieces of the puzzle," Panariello said. "It's like forensic science."
The data-crunching can also flag someone who declares a $4,000 painting to US Customs when reentering the country but neglects to pay tax on it. (Residents are required to pay a 5 percent use tax on items covered by the state sales tax that are purchased elsewhere and used here.)
Sometimes the clues indicate a taxpayer may be hiding something. An individual reporting only $20,000 in annual income yet identified by Registry of Motor Vehicle records as having a $60,000 car would merit a second look. So would a plumber with a low reported income but a lavish lifestyle. Is he getting paid under the table?
The public databases include information from the Internal Revenue Service, Customs, state licensing boards, the Registry of Motor Vehicles, state incorporation records, and other sources LeBovidge won't even discuss. "We can't give away all the secrets," he said.
Eventually, LeBovidge said, his agency will start tapping into private databases as well. Dun & Bradstreet, he said, tracks all sorts of indicators of business activity that may help the state uncover corporations not now on its radar screen that owe taxes.
About the only place taxpayers can fudge on their federal returns and not get caught, absent an audit, is their charitable contributions, said Frederick Beebe, the state's deputy commissioner for audits. But he said it's only a matter of time before charities start reporting donors and the size of their gifts to tax-collection agencies for verification.
Separately from the Discovery program, the state is also gathering information from other sources to track down tax leads. Most states now share with each other the results of their audits. North Carolina, for example, might audit a furniture manufacturer and get a list of customers to whom the company shipped a chair or a sofa without collecting sales tax.
North Carolina could share that list of customers with other states so they could track down those residents who bought a piece of furniture but didn't pay use tax on it. The same sharing of data goes on with purchases of jewelry, furs, and virtually anything else that's taxable.
Massachusetts is already demanding that shipping companies like United Parcel Service and Federal Express share the names of individuals who receive shipments of cigarettes from out-of-state companies. The state has collected $162,000 in cigarette excise taxes this way over the last year.
LeBovidge said eventually the state will begin scrutinizing all shipments into Massachusetts to see if residents are buying items on which they should be paying a use tax.
Noting that the best way to avoid tax increases is to collect all existing taxes, the commissioner stressed that the hunt for unpaid tax revenues is just beginning. "We're in the embryonic stages of where this is going to go," he said.
E-mail forwarding Comcast Corp. says its customers can now halt the forwarding of e-mail from their old attbi.com addresses to their current Comcast addresses with a call to customer service.
Several Comcast customers contacted The Boston Globe recently to complain that large amounts of spam, much of it pornographic, were being forwarded from their old AT&T addresses. They had assumed the forwarding would stop at the end of last year (the Comcast-AT&T merger was completed in November 2002 and e-mail forwarding began last June), but the spam kept coming in January.
When they called Comcast to complain, the customers said they were told the forwarding service wouldn't be dropped until the end of this year.
"Comcast has become the world's biggest spammer!" e-mailed Paul Wood of Hampton, N.H., who wanted his forwarding shut off. "Is there anything you or your readers can do?"
The Globe contacted Jennifer Khoury, a local spokeswoman for Comcast, who said the company had received complaints about the e-mail forwarding from customers in a number of markets.
She said the company intends to continue the forwarding until Dec. 31 but will cancel it manually for those customers who want it shut off. She said the manual shutoff takes five days to complete.
Bruce Mohl can be reached at firstname.lastname@example.org.