The Internal Revenue Service (IRS) has unveiled its plans to leverage artificial intelligence (AI) as a powerful tool in its arsenal to combat tax schemes used by wealthy individuals and businesses. This strategic move comes as the IRS undergoes a significant reshuffle, bolstered by an influx of funds from the Inflation Reduction Act. The agency aims to employ AI to audit 75 of the largest partnerships in the United States, including those between hedge funds, real estate investors, publicly traded companies, and large law firms, all of which boast an average of around $10 billion in assets.
AI for enhanced tax enforcement
Commissioner Daniel Werfel, speaking on the initiative, highlighted the role of AI in pattern recognition and uncovering previously unseen trends in tax evasion. He emphasized that AI would be instrumental in identifying high-risk partnerships that may be shielding income from taxation. This new approach signifies the IRS’s commitment to cracking down on sophisticated tax evasion schemes employed by the ultrarich.
Targeting the wealthiest tax evaders
The IRS’s decision to incorporate AI into its enforcement strategy reflects its intensified focus on the most affluent tax evaders. The agency acknowledges that over the past decade, audit rates for high-earning individuals, partnerships, and other wealthy taxpayers have declined sharply. To address this issue, the IRS plans to deploy “dozens of Revenue Officers” in conjunction with AI technology to enhance its capabilities further.
Key targets and parameters
Under the new program, the IRS will specifically target individuals with reported incomes exceeding $1 million who carry more than $250,000 in recognized tax debt. This category comprises approximately 1,600 taxpayers collectively owing hundreds of millions of dollars in taxes. By zeroing in on these high-earning individuals and partnerships, the IRS aims to recover substantial tax revenue that may have otherwise gone uncollected.
Focus on digital assets
In addition to its efforts targeting wealthy taxpayers and partnerships, the IRS will expand its focus to include digital assets. The agency notes that a staggering 75% of taxpayers who engage in digital asset exchanges fail to comply with tax laws. This expansion underscores the IRS’s commitment to ensuring that all forms of income, including those generated from digital assets, are properly reported and taxed.
AI’s evolution at the IRS
The IRS’s foray into AI-based tax enforcement is not entirely new. The agency began experimenting with AI for general income tax accounting purposes in 2021. This initial exploration laid the groundwork for the current initiative, which extends AI’s role to identify and combat tax evasion among the wealthiest taxpayers and partnerships.
Enhanced taxpayer services
While the IRS is sharpening its enforcement capabilities with AI, it is also making strides in improving its services to taxpayers. In June, the agency announced plans to implement voice and chat bots. These AI-powered tools will assist taxpayers with payments and collections, ultimately aiming to reduce call times and streamline the taxpayer experience.
The IRS’s decision to embrace artificial intelligence in its efforts to target ultrarich taxpayers and partnerships marks a significant shift in the agency’s approach to tax enforcement. By utilizing AI’s pattern recognition capabilities, the IRS aims to uncover previously undetected tax evasion schemes and ensure that high-earning individuals and partnerships fulfill their tax obligations. This move aligns with the agency’s broader mission to enhance tax compliance, recover unpaid taxes, and level the playing field for all taxpayers. Moreover, as the IRS continues to evolve its technological infrastructure, it also seeks to improve its services to taxpayers, making the tax process more accessible and efficient for all.
