The IRS has started using artificial intelligence (AI) to make some of its processes more efficient. This move is a big shift for the IRS and could substantially impact high-income taxpayers and large partnerships. AI has some advantages for the IRS, but there are certain risks and downsides to be aware of, too.

Why Is the IRS Using AI?

According to the U.S. Government Accountability Office (GAO), hundreds of billions of dollars of taxes are not collected each year. The IRS is hoping to solve this decades-long problem by using artificial intelligence. Specifically, it wants to identify patterns and trends that indicate tax evasion—and which get overlooked by traditional methods.

Primary AI Use Cases for the IRS

So far, there are three key AI applications for the IRS which may concern high-income individuals:

• Audit Selection: AI models can select tax returns for audits by analyzing vast datasets to pinpoint discrepancies and potential non-compliance.
• Partnership Compliance: The IRS uses AI to scrutinize large partnerships, such as hedge funds and real estate investment groups, which often have intricate structures.
• High-Income Taxpayer Monitoring: AI can help detect high-income individuals who may underreport income or engage in complex tax avoidance strategies.

Pros and Cons of AI Integration at the IRS

One of the obvious advantages for the IRS is more efficiency in processing tax returns. It can more accurately target audits and save its auditors time by analyzing huge volumes of data. However, there are risks with using AI. The AI models the IRS uses may inadvertently introduce bias and single out certain taxpayer groups for audits disproportionately. There are also concerns about transparency and public trust, as well as how the IRS communicates what exactly it's using AI models for.

Will You Be Audited Because the IRS Uses AI Now?

Depending on your tax situation, your chances of getting audited might be higher than they were before the IRS started using AI. It's best to err on the side of caution and ensure all your tax papers are in order and that your returns are filed on time.

If you have questions about your tax status or need to get caught up on filing past returns, you can call the tax attorneys at Gabaie & Associates, LLC. We help Maryland taxpayers deal with all IRS and state tax issues, helping keep you compliant while optimizing your tax return. Call (410) 358-1500 or send us a message on our contact form to schedule a free consultation.