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Tax DiscoveryHow To Use It EffectivelyPresented By Jeffrey Turrow, PhDPresident, TMA, Inc.

___________TMA, Inc. Turrow / McParlane Associates, Inc.

1633 Erringer Road, Suite 208 Simi Valley, California 93065 USA

Phone: 805.955.9500 e-mail: info@tmausa.com WEB: www.tmausa.comTMA,

Inc.

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What is Tax Discovery?• The Objective:

– “FIND” accounts unknown to the currentdatabase

– Educate, Calculate, Collect, Comply• The Opportunity:

– Create NEW REVENUE sources– Generate Avenue for continued Future Voluntary Compliance

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Universe of Liability

Out- Nexus

In- Jurisdiction

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Typical Tax Gap Make-up

Registered

57%

Registered, Non

or Partial

Compliant

16%

Unknown

27%

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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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Avenues to Consider• Awareness campaigns

– Multimedia (Rule of Three)– Mail Campaigns

• Discovery Processing• Budgeting Concerns• Resources Available

– Call Campaigns• Discovery Processing• Call Center Set-up/Management• Resources AvailableTMA,

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Avenues to Consider…cont.• Nexus Development

– Taxpayers generating liabilities within thejurisdiction of the taxing agency without having aphysical 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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• 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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Turning Over Stones

• Identify any and/or all Tax GapDeficiencies utilizing thorough duediligence to analyze current processes

• Use combination of Public records andPrivate resources to identify possible gaps

• Re-evaluate current systems to maintaincurrent profiling information

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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 Nexuscompliance and awareness

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Thinking Outside of the Box

Outdated Methodologies

Lack of Resources

Database Warehousing/Profiling

Tax Discovery

Enterprise Call Center

InternetVerification

Outsourced Resources

Intra-departmental Comparison

Managed Collection Services

Managed Workflows

Disparate Legacy Communication

On-line Registration

Managed Web Sites

Antiquated Systems

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Ignorance of the lawis no excuse!

If a Taxpayer is ignorant of the law, itis most likely the agency who has

failed!!!!

Discovery identifies and educatesthose who are not aware?

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What it takes for aSuccessful Campaign

• 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 ProcessTMA,Inc.

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How does Discovery Work?• Knowledgeable Database Development:

– Combining many and varied databases to create oneunique, 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 technicalresources?

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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 thecorrect databases for use in an investigative, "discovery"process.

• Commitment to educate the taxpayer regarding the overalltax process - create a basis for voluntary compliance inthe future.

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Unsuccessful Campaigns• Cause

– Inexperienced management/IT of DiscoveryPrograms

– Not enough resources– Ineffective databases– Lack of intra departmental

communication/cooperation– Low acceptance level– Missing “Discovery” steps– Lack of understandingTMA,

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Unsuccessful Campaigns…cont

• Effect– 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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Discovery Effort –Stepped outUnqualified• 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 cancelledLabor expense to track

• 20 minutes per account *$25/hr - $1,125,000

Total results - $3,749,500Total lost revenue

@$500K/person 21 persons - $10.5MNet ($6,750,500)

Experienced• 300K in Universe• 45K mailed

– Materials Cost $1,325,650– Labor Expense $13,500

• 33% Return @$400/account = $6MM

• 30,000 to be cancelledLabor expense to track

5 minutes per account$25/hr - $125,000

Total results - $4,535,850Total lost revenue @$500k/person

1.5 persons - $750,000Net $3,785,850

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The ProcessDiscover

IdentifyPursue

EDUCATECalculateCollect

MaintainTMA,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 renewalsTMA,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)

• By Hobby……. (e.g. Computer, reading)

• By Education ……. (e.g. College Graduate)TMA,Inc.

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Matching Process

Matching/Un-matching technologyidentifies matched and unmatched accountsbased on sophisticated algorithms thatreview each account by:

-normalization -data cleansing -A/I “fuzzy” sound/phonics

comparing techniquesTMA,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

campaignsTMA,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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Identify

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Integrated Database Management

Normalization Process: standardize data formats

Data Cleansing Process: standardize dataelements

Compare Process: utilize A/I “fuzzy” sound/phonics techniques

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Normalize Data Formats

– 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 shownbelow, there are many ways it can occur. Intelligent

matching algorithms must decipher these differences sothat they compare as equal.

• 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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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.)– Input errors (Klink / Kink / Klik / Klimk / Klunk)

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Intelligently Compare (cont’d)

Example: Address– 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&

EducateTMA,Inc.

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Discovery Processing• Integrated Case Management

– 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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DiscoveryTax Calculations

This is an extremely powerful and effective toolto allow a Tax Specialist immediate at-oncecalculation and customer information retrievalthat provides the taxpayer immediate resolve

Result: the Taxpayer receives comfort andsatisfaction provided him with the utmostcustomer care while the agency benefits fromreceiving immediate effective resolve intocompliance without being bogged down withcontinued and long term collection efforts.

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Maintain

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Benefits of Maintenance

Create an atmosphere whereasthe Taxpayer will voluntarilycomply in future years

• Less costly future field audits• Reduce cost of recovery• Dramatically decrease Tax Gap

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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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Options• In House

– Management team with experience, vision, andwillingness to develop and implement newmethodologies

– Staff willing to work in new methodologies– Budget to “Get It Done”

AdvantageSecured control of dataExperienced staffCost 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 ofmethodologies

– Complementary data development service(Data Warehousing)

AdvantageExperience, Experience, ExperienceCost Effective (especially if Benefits-Based)State-of-Art ProcessingGuaranteed ResultsTMA,

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An Even Playing Field

Individual/Business

County

LocalFed

State

Income, Employment

Sales/Use, Income, Permit,Property, Employment, Asset

Business, Permit, Property, Licensing

Reduction on dependency will increase budget, decrease taxation……application: Communication

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