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Audit lead selection and yield prediction from historical tax data using artificial neural networks

Tax audits are a crucial process adopted in all tax departments to ensure tax compliance and fairness. Traditionally, tax audit leads have been selected based on empirical rules and randomization methods, which are not adaptive, may miss major cases and can introduce bias. Here, we present an audit...

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Detalles Bibliográficos
Autores principales: Chan, Trevor, Tan, Cheng-En, Tagkopoulos, Ilias
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Public Library of Science 2022
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9710839/
https://www.ncbi.nlm.nih.gov/pubmed/36449508
http://dx.doi.org/10.1371/journal.pone.0278121
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author Chan, Trevor
Tan, Cheng-En
Tagkopoulos, Ilias
author_facet Chan, Trevor
Tan, Cheng-En
Tagkopoulos, Ilias
author_sort Chan, Trevor
collection PubMed
description Tax audits are a crucial process adopted in all tax departments to ensure tax compliance and fairness. Traditionally, tax audit leads have been selected based on empirical rules and randomization methods, which are not adaptive, may miss major cases and can introduce bias. Here, we present an audit lead tool based on artificial neural networks that have been trained and evaluated on an integrated dataset of 93,413 unique tax records from 8,647 restaurant businesses over 10 years in the Northern California, provided by the California Department of Tax and Fee Administration (CDTFA). The tool achieved a 40.1% precision and 58.7% recall (F1-score of 0.42) on classifying positive audit leads, and the corresponding regressor provided estimated audit gains (MAE of $155,490). Finally, we evaluated the statistical significance of various empirical rules for use in lead selection, with two out of five being supported by the data. This work demonstrates how data can be leveraged for creating evidence-based models of audit selection and validating empirical hypotheses, resulting in higher audit yields and more fair audit selection processes.
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spelling pubmed-97108392022-12-01 Audit lead selection and yield prediction from historical tax data using artificial neural networks Chan, Trevor Tan, Cheng-En Tagkopoulos, Ilias PLoS One Research Article Tax audits are a crucial process adopted in all tax departments to ensure tax compliance and fairness. Traditionally, tax audit leads have been selected based on empirical rules and randomization methods, which are not adaptive, may miss major cases and can introduce bias. Here, we present an audit lead tool based on artificial neural networks that have been trained and evaluated on an integrated dataset of 93,413 unique tax records from 8,647 restaurant businesses over 10 years in the Northern California, provided by the California Department of Tax and Fee Administration (CDTFA). The tool achieved a 40.1% precision and 58.7% recall (F1-score of 0.42) on classifying positive audit leads, and the corresponding regressor provided estimated audit gains (MAE of $155,490). Finally, we evaluated the statistical significance of various empirical rules for use in lead selection, with two out of five being supported by the data. This work demonstrates how data can be leveraged for creating evidence-based models of audit selection and validating empirical hypotheses, resulting in higher audit yields and more fair audit selection processes. Public Library of Science 2022-11-30 /pmc/articles/PMC9710839/ /pubmed/36449508 http://dx.doi.org/10.1371/journal.pone.0278121 Text en © 2022 Chan et al https://creativecommons.org/licenses/by/4.0/This is an open access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/) , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
spellingShingle Research Article
Chan, Trevor
Tan, Cheng-En
Tagkopoulos, Ilias
Audit lead selection and yield prediction from historical tax data using artificial neural networks
title Audit lead selection and yield prediction from historical tax data using artificial neural networks
title_full Audit lead selection and yield prediction from historical tax data using artificial neural networks
title_fullStr Audit lead selection and yield prediction from historical tax data using artificial neural networks
title_full_unstemmed Audit lead selection and yield prediction from historical tax data using artificial neural networks
title_short Audit lead selection and yield prediction from historical tax data using artificial neural networks
title_sort audit lead selection and yield prediction from historical tax data using artificial neural networks
topic Research Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9710839/
https://www.ncbi.nlm.nih.gov/pubmed/36449508
http://dx.doi.org/10.1371/journal.pone.0278121
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