As artificial intelligence grows, the Internal Revenue Service plans to use the technology to limit the abuse of tax laws. On October 8, 2023, the IRS announced it will use artificial intelligence to audit an increased number of high-income earners, partnerships, large corporations, and promoters. The announcement aspires for fairness in tax compliance – over the past decade, the audit rate for high earners has decreased significantly.
Among other advanced technologies, the IRS will utilize AI to better identify tax cheating and imminent compliance threats by increasing its audit rates. However, the audit rates for those making less than $400,000 a year will not increase. The use of AI is in conjunction with the hiring of new, more experienced personnel. This new measure will allow the IRS to weed through the extensive data it has on companies, including tax returns and publicly available financial information. Further, it will allow the agency to sniff through larger files much quicker, making it easier for it to administer an initial tax review.
IRS Commissioner Danny Werfel stated, “The nation relies on the IRS to collect funding for every critical government mission — from keeping our skies safe, our food safe and our homeland safe. It’s critical that the agency addresses fundamental gaps in tax compliance that have grown during the last decade.” The IRS revealed that in the 2020 and 2021 tax years, the difference between taxes owed and those paid rose to $688 billion.
Once the plan is fully executed, high earners are expected to receive heightened scrutiny from the IRS. The AI algorithm is likely to spot tax problems among the wealthy that have gone unidentified in previous years. As a rule for all, but especially the high earners, as audit rates are set to increase, keep all of your tax records and receipts accessible and organized.
In addition to increasing tax audits among high earners, the IRS has further plans, like prioritizing high-income cases, expanding work on digital assets, improving audit equity, protecting taxpayers and businesses from scams and schemes, and more heavily scrutinizing foreign bank and financial accounts violations.