IRS Paid Palantir $1.8 Million to Build a New Tool to Target High-Priority Tax Audits

Newly obtained public records acquired by WIRED show the U.S. Internal Revenue Service (IRS) paid Palantir Technologies $1.8 million last year to upgrade a custom-built tool designed to help the tax agency flag “highest-value” cases for audits, collection of unpaid back taxes, and potential criminal tax investigations.

At the time the contract was signed, the IRS noted its existing process for selecting high-risk tax cases relied on a patchwork of “more than 100 separate business systems and 700 distinct methods” built up over decades, to identify filings where taxpayers may have misreported income or owe money to the agency. As detecting potential tax discrepancies grew more complex, the agency acknowledged these legacy systems had become increasingly inefficient, leaving it in need of a targeted solution.

In a contract scope document obtained by WIRED, the IRS spelled out the risks of its disjointed existing setup: “This fragmented landscape can lead to a number of undesirable outcomes including but not limited to duplication of effort and cost, poor understanding of gaps in the coverage, and suboptimal case selection.”

Palantir’s custom tool built to address this gap is called the Selection and Analytic Platform, or SNAP. It is designed to help the IRS streamline its process of identifying potential fraud cases, though records confirm the software is currently only being tested as part of a limited pilot program. Neither Palantir nor the IRS responded to requests for comment on the project.

It remains unclear how long Palantir has been developing SNAP, but government contracting records show the IRS has procured Palantir-built technology since 2014. In total, Palantir has been awarded more than $200 million in contracts and obligated payments from the IRS, and records show the agency is now looking to deepen its working relationship with the company.

The exact role SNAP will play in the IRS’s existing technology stack is still unclear. Like most other Palantir tools, it will likely operate atop the IRS’s heavily fragmented legacy databases, helping human auditors spot red flags in tax filings that would otherwise go unnoticed. The contract confirms the IRS is prioritizing software modernization and has turned to Palantir to advance that goal. Per one project document, the SNAP pilot is designed to extract “key information about contracts, vehicles and vendors” from unstructured data contained in tax supporting documents.

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The IRS tasked Palantir with building three specific “case selection methods” tied to key sections of the current tax code: disaster zone tax claims (relief for natural disaster victims), Residential Clean Energy Credits (an incentive that offsets costs for installing solar panels, wind turbines and other residential clean energy infrastructure), and Form 709 Gift Tax Returns, which must be filed when a taxpayer gives away high-value assets such as artwork, stocks, or private business entities.

Mitchell Gans, a Hofstra University professor specializing in gift and estate taxes, says if SNAP is analyzing unstructured data from supporting documents, it is likely reviewing forms that require “adequate disclosure” of gifted property. IRS rules mandate these disclosures must include “a detailed description” of how the property’s value was calculated, plus information on the relationship between the gift giver and recipient.

For example, Gans explains, if a taxpayer gifts a private business to another party, the required disclosure must include supporting documentation for the asset’s appraisal, such as “balance sheets and statements of net earnings, operating results, and dividends.”

Erica Neuman, an accounting and finance professor at Youngstown State University, adds that public unstructured data from other sources could also be of interest to the IRS through SNAP, including transaction logs from peer-to-peer payment apps like Venmo, and public seller storefronts on e-commerce platforms like Etsy and Depop.

If SNAP were to incorporate data from platforms like Venmo or Depop when prioritizing audit cases, the IRS would already need to hold that data. Contract documents explicitly state the agency only requires Palantir to work with “existing data in SNAP today.”

For decades, the IRS’s primary method for ranking audit candidates has been to assign every taxpayer a Discriminant Information Function (DIF) score. Per the IRS, “the higher the score, the greater the audit potential.” Neuman notes the DIF scoring formula has long been a black box, but researchers broadly agree the system flags filings that share key traits with past returns that were ultimately audited and found to have underreported tax.

Neuman has studied other alternative approaches the IRS has tested to improve its case-selection process, including contracting with platforms like Coinbase to analyze cryptocurrency transaction data, and mining public social media posts for clues that an individual or business may be underreporting income.

The IRS has attempted to update its own in-house technology multiple times, but Neuman says these efforts have consistently been plagued by technical problems. The agency “basically never had a full successful modernization since the 1960s,” she explains.

Modernization challenges are not unique to the IRS; other parts of the federal government also struggle with outdated systems. For example, the application process for federal worker retirement still partially relies on paper documents stored in a limestone mine in rural Pennsylvania.

But Neuman says there is a unique barrier holding back the IRS: the agency is deeply unpopular with the public, making it a convenient punching bag for politicians looking to score political points with voters. As a result, there has long been “a lack of political will to die on the hill of the IRS,” she says.

During the Trump administration, this dynamic translated to shrinking budgets and widespread staffing cuts at the IRS. In February 2025, roughly 103,000 people worked for the agency. By July 2025, more than 25,000 employees had resigned or accepted offers of deferred resignation and early retirement.

IRS leadership also tends to turn over very quickly, making it difficult for large, multiyear modernization projects to stay on track or reach completion. “The commissioner turnover is incredibly quick—and that, of course, has accelerated in the most recent years,” Neuman says. “But it's just hard to get things done when there's not enough resources, and no one is really pushing that hard for it.”