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Outside businesses help tax agencies fight fraud

Because of several scams that have affected people from Massachusetts and others across the nation, a number of agencies, including the IRS, are using new programs to verify the authenticity of tax refund claims. Several of the companies that are working to prevent tax evasion include SAS Institute, LexisNexis Group and International Business Machines Corp.

Some types of fraud involve the use of the social security numbers of people who aren't responsible for taxes, such as those in custody, those who live in Puerto Rico and even the deceased. Their information is used to claim money through fraudulent returns every year. The IRS estimates that scams and underpayment of taxes cost them about $385 billion annually.

IBM provides software that helps predict possible crime while the software from LexisNexis focuses on the identity-theft scam. They refer to a database with personal information, so they can compare background information on a person with information that individual submits to the IRS.

The pilot program began in Georgia in 2011 but has expanded to include Louisiana, South Carolina and Connecticut, with additional states to be added. Louisiana thinks they have avoided losing between $5 and $7 million in taxes annually since they began using the service. A spokesman estimated that the program in Georgia kept their state from spending $23 million on fake returns. While one program cost Washington $5 million to implement, the state was losing $100 million due to workers' compensation fraud. The fraud-prevention program has saved them $10 million yearly. Some of the companies bill by taking a percentage of the savings, while others charge a fee for the program. Local and federal tax agencies are now looking to outside companies to reduce tax evasion. A tax attorney might be able to help clients who have been accused of tax-related crimes.

Source: Wall Street Journal, "IRS, States Call on IBM, LexisNexis, SAS to Fight Tax Fraud", Reed Albergotti, July 22, 2013

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