The IRS wants smarter audits that could help Palantir decide who to report

Internal revenue The service paid Palantir $1.8 million last year to improve a custom tool designed to help the tax agency identify “highest value” cases for audits, unpaid tax collections, and potential criminal investigations, according to documents obtained from WIRED via a public record request.

When the contract was signed, the IRS said it was using “more than 100 business systems and 700 methods,” built over “decades,” to pick out cases where people may have reported their taxes incorrectly or owed the IRS money. As identifying potential tax discrepancies has become more complex, the agency said its systems have become increasingly ineffective, and it needs to find a solution.

“This fragmented landscape can lead to a number of undesirable outcomes, including, but not limited to, duplication of effort and cost, misunderstanding of gaps in coverage, and suboptimal case selection,” the IRS wrote in a document obtained by WIRED outlining the scope of the contract.

The custom tool Palantir created to address the problem, called the Selection and Analysis Platform, or SNAP, is designed to help the IRS simplify how it identifies potential fraud cases. Right now, the software is only being used as part of a beta 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 made by the company since 2014, government contracting records show. In total, Palantir has more than $200 million in contracts and committed payments with the IRS. The documents show that the agency is now interested in deepening its relationship with Palantir.

It’s not entirely clear how SNAP would fit into the IRS’ existing technology systems. Like Palantir’s other tools, it will likely sit on top of highly fragmented IRS databases, helping human auditors identify red flags in tax returns that they may have missed. The contract indicates that the IRS is interested in modernizing its software and is turning to Palantir for assistance. According to one document, Palantir’s SNAP pilot is designed to surface “basic information about contracts, vehicles and vendors” from “unstructured data from supporting documents.”

The IRS asked Palantir to formulate three “case selection methods” related to parts of the current tax code. Options included disaster zone claims, a form of tax credit for victims of natural disasters, residential clean energy credits, a tax credit program that offsets the cost of installing things like solar panels or wind turbines, and Form 709 gift tax returns, which people may have to fill out when they donate valuable items like artwork, stock or corporate entities.

If SNAP were analyzing unstructured data from supporting documents, it might examine forms that provide “proper disclosure” of property being gifted to someone else, says Mitchell Jans, a professor at Hofstra University who focuses on gift and estate taxes. The IRS stipulates that these disclosures must include a “detailed description” of how the value of the property was determined, and the relationship between the grantor and recipient.

For example, if someone gave someone else a private company, the disclosure would need supporting information about how it will be valued, such as “balance sheets, net earnings statements, operating results and dividends,” Ganz says.

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

If Palantir’s SNAP tool took into account data from Venmo or Depop when selecting audit cases, the IRS would already have to have it. The agency only wants Palantir to use “data in SNAP today,” the contract documents state.