Using Foursquare to Detect Tax Evasion / Money Laundering

http://diegobasch.com/using-foursquare-to-detect-tax-evasion-money-17550

by dbuthay • 14 years ago

27 51 14 years ago

I highly doubt the government would trust a service like that for such problems or even waste their valuable time. I'm sure they have much more efficient ways of detecting this then trying to sift through that junk. It's also very easy to manipulate check-in's (Foursquare specifically), in respect to checking into locations when you don't actually have to be there, physically. And as far as Facebook goes, you can check others into a location, which could easily spike false information.

diego6• 14 years ago

I guess the more general point I was thinking about is that there are tons of new signals that governments or private groups could use to assess all sorts of activities. For example the government has easy access to cellphone density data from carriers, which would be harder to game. Foursquare check-ins could be a cheap way to decide which places to look into first.

mc32• 14 years ago

I've heard, no first-person knowledge here, that upon suspecting a business, taxation agencies are not unknown to send out a person with a clicker to tally patronage during spcific time periods and see if that lines up with their expectations and what the business reports. As others have said, this could be one of many signals to use in determining who to follow up on.

rmc3• 14 years ago

I've heard of tax inspectors counting the cars parked outside small businesses to get an idea of number of customers.

alecdibble• 14 years ago

The difficulty is in the details. Normalizing would have to account for a variety of different variables such as location, average age/customer base, average revenue per customer, etc. Furthermore, you would need all of that data many different businesses to even be able to build your normalization.

Sure, you could do a subpar job with the normalization but then that will increase your false positives and decrease confidence in the method.

IndianGuy79• 14 years ago

A good exercise, but nothing beyond that. Too many factors based on assumption. Also repeat visitors tend to skip continued the check-ins after the novelty of it wears down (unless there are extremely good reward offers associated with number of check-ins).

diego6• 14 years ago

As long as the "repeat visitors" pattern is the same across business categories, it wouldn't add noise. There are always first-time visitors.

csense• 14 years ago

The effect is probably real, but the problem is the correlation coefficient probably varies over space and time.

E.g. you probably have a lot more Foursquare users in Silicon Valley than in Smalltown, USA.

Also, Foursquare probably has its popularity change over time. Right now it's still a little new and shiny, but its popularity might change over time.

If it was the only information available, it would be better than nothing. But your proposed method would be extremely noisy and unreliable.

diego6• 14 years ago

The good thing is that it's not the only information available, just one more signal. And what's wrong with trying it out only in the Bay Area and New York, for example?

mark2424• 14 years ago

"Hey everyone! The IRS is using your check-in data to police the places that you frequent!"

I'm sure nothing bad at all would happen upon people reading that headline.

arscan• 14 years ago

Perhaps a slightly more realistic usage would be for financial analysts to use the data as a (weak) signal as to whether or not companies are on track to meet their earnings expectations. I believe that they have gone as far as to buy satellite pictures of parking lots (empty/full) to try to gauge how well big retailers are doing...

staunch• 14 years ago

Related question. Am I wrong in assuming virtually every business that has a "cash only" policy does so to facilitate tax fraud?

I know there are legit exceptions, but isn't this the main reason they do it?

sulife• 14 years ago

Avoid CC fees.

grgbrn• 14 years ago

I always assumed it was to avoid card swipe fees. Margins at small restaurants can be incredibly thin, so a percent or two off each transaction could make a big difference.

ChuckMcM4• 14 years ago

You would be wrong in that assumption. Some businesses don't like paying the additional fees charged by banks when you use a credit card, they can be up to 8.5% according to a friend of mine that runs a locksmith. He would rather give 8.5% more service to the folks who come in the door. He has an ATM on site that will let you get a cash advance on your credit card if all you brought was plastic. It has a $3 transaction fee (plus what ever your bank charges). When people complain he says, "you can pay it or you can pay it." Then explains that he (like everyone else) would simply raise his price making that fee 'invisible' to you and let the banks get away with it. This way you have a choice (of sorts).

larrys5• 14 years ago

Fees are nowhere 8.5% I've never heard that and have had a merchant account since the 80's at several businesses.

Not taking credit cards will cost you business in a retail location.

mikeash• 14 years ago

Your friend's rates seem a bit crazy. Square charges under 3%, and a dedicated merchant account can be less still.

fleitz2• 14 years ago

Cash can be spent immediately, CC receipts not so much.

In the case of CC you'll get a payment 30 days later, so in VISA vs. cash, you're not getting the interest on the money, if you need to use the money you'll have to pay your bank interest, and you'll pay a processing fee on top of it.

About the only advantage CC has is that it's difficult for employees to steal from the register, so instead they steal the magstrips.

larrys5• 14 years ago

"In the case of VISA you'll get a payment 30 days later, so in VISA vs. cash, you're not getting the interest on the money,"

Wha? I get my Visa money within a day or two.

rmc3• 14 years ago

Credit card fees cost money and credit card companies don't let retailers charge a higher price for credit card transactions, so the retailer has to get the hit.

However if your plumber or tradesperson gives a lower price for cash, then that's probably tax evasion.

mark2424• 14 years ago

The example to date is the Eiffel Tower, with 36429 checkins over the 3 years of Foursquare's existence.

Approximately 6.8 million people visit the Eiffel Tower each year.

It doesn't take a math major to realize that this is a laughable idea.

diego6• 14 years ago

Probably the majority of those check-ins happened in the past year. Also, look at a Starbucks near where I live:

https://developer.foursquare.com/docs/explore#req=venues/49f...

Over 10k check-ins, and I doubt it has 2 million visitors per year.

Please elaborate on why you believe this is a laughable idea just from a numerical standpoint.

mark2424• 14 years ago

OMFG Starbucks reported $3B in revenue this past quarter, but this store only has 10k checkins! Send in the G-Men, they must be laundering money!

Come on, seriously.

jack-r-abbit• 14 years ago

Have you ever checked into a business because you were there even if you did not buy anything? Have you ever gone to a business and not checked in even though you were buying something? I have done both. The number of people that check-in at a business has absolutely nothing to do with the amount of sales that business is on the hook to pay taxes for. One person might check in to Starbucks every morning as they purchase $50 worth of coffee and pasteries for their office. Another person might check in every morning when they buy their $2 double shot. Another person may go every morning yet check in only from time to time. There is no way this could be calculated to the accuracy that (dear god I hope) the IRS is held to.

DanielBMarkham3• 14 years ago

You can slice this the other way also: using check-ins for a particular person to track where they visit. If their reported income is low, yet they check-in regularly at expensive restaurants and travel the globe, you've probably got a tax cheat in there somewhere or another.

Seriously, I have no idea why we discuss some of this stuff. It only serves to give ammo for other people to monitor and control us in ways they never have before.

heretohelp• 14 years ago

I had the same reaction, this stuff makes me queasy.

I don't like tax cheats, but a tax cheat isn't going to imprison me for having the wrong opinions.

DanielBMarkham3• 14 years ago

We have to remember that our set of laws was designed with a huge amount of slack. You can have a speed limit that nobody follows because hardly anybody gets caught. Once you start catching everybody, you've changed the social dynamic just by following the rules more strictly.

This kind of thing is a huge deal. For decades politicians have spit-balled new laws that, even though passed, don't amount to squat because nobody can figure them out or enforce them.

The more we automate this stuff the more miserable all of our lives will be. This kind of thing is not good at all. Can emphasize enough how these technological developments are a terrible evil (and I love technology)

rdtsc2• 14 years ago

I can see IRS building a fun little crawler. They already know everyone's name, address, place of employment, age, marital status, salary, the church they donate to. It would be interesting (and scary) to try to identify potential auditing target based on these check-ins and other stuff (from say, Facebook posts, twitter).

lpolovets• 14 years ago

The tricky thing here, IMO, is that spending is based on assets + income, not just income. If I inherited $3m, make $50k/year, and spend $100k/year, it doesn't mean I'm lying about the $50k, it might just mean I have enough savings to live beyond what my income suggests.

larrys5• 14 years ago

"Seriously, I have no idea why we discuss some of this stuff."

There are times on HN when I laugh because people discuss things that could happen that in a practical sense stand little chance of happening. But they hang on the fact that it is possible the same way they might know someone who got ticketed for going 2 miles over the posted speed limit.

The IRS has (or had) a program called TCMP where they dissect everything on a tax return to see if it's kosher from many different angles. They will also see the "lifestyle" that you are leading and dig depending on that.

The IRS doesn't need foursquare to gather information to determine tax cheats they have other ways to do that if they wanted to. They could rely more on information on snitches or they could simply do a better job of correlating where someone lives with what they pay in taxes as a starting point (I believe they do some of this already but it's probably only at the zip code level). A good test for how they don't do this is to try and tip them off to someone who you think is cheating. Without hard evidence they won't do anything.

"check-in regularly at expensive restaurants and travel the globe"

You can buy some of this data in various forms the same way any marketer does. Or you can access property records. If someone has two houses and is reporting $20k in income that's a good place to start asking questions. You could then correlate it with what their reported income is as a starting point. From everything I've seen though the IRS doesn't operate that way.

fleitz2• 14 years ago

Statistically it's horrible, however, it's probably good enough that some politician will make the IRS do this and now businesses will concern themselves with ensuring they have the right number of checkins.

Luckily it should be a great business to ensure that local businesses get the right number of checkins.

danso• 14 years ago

I'm all for unique uses of programmatic data collection, but this is a huge, huge stretch, with no practical implementation details.

xmmx• 14 years ago

tldr: just because lots of people use foursquare there should be a direct correlation between check-in's and revenue; this method should be used by the IRS when collecting taxes.

Are you serious? This is no way front page HN worthy. This is the worst thing I've read since that "wake up at 5am and eat a slice of ham to start my metabolism" trash.

rmc3• 14 years ago

Conversely if you have a grudge against a neighbouring business, make lots of fake accounts, check in there on foursquare to make the tax collectors think something is up.

bigfrakkinghero• 14 years ago

This seems to me like it would be an interesting hypothesis for a an experiment, but a bad idea to suggest/encourage in any "real" (IRS) capacity. Academically the idea is interesting, but the thought of this being actually implemented is a little scary.

... but you could say the same thing about a lot of other areas of research, too. Face detection at Facebook's scale, for example: really cool academically and potentially really scary in application.

wangarific• 14 years ago

If you've ever seen the code behind what the IRS uses today, you'd realize that it couldn't possible integrate with anything, let alone it's own systems.

Plus this doesn't work for so many reasons, many of which people have outlined here.

Using Foursquare to Detect Tax Evasion / Money Laundering

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