IRS Implements Artificial Intelligence to Combat Tax Evasion

IRS Implements Artificial Intelligence to Combat Tax Evasion.In an effort to enhance tax enforcement, the Internal Revenue Service (IRS) has begun harnessing artificial intelligence (AI) to investigate tax evasion cases involving multibillion-dollar partnerships.

IRS Implements Artificial Intelligence to Combat Tax Evasion

This strategic move is part of the IRS initiative to more effectively monitor and regulate hedge funds, private equity groups, real estate investors, and major law firms.

Strengthening the IRS with New Resources

The IRS recently announced its utilization of funds from the $80 billion allocated through the Inflation Reduction Act of the previous year. This funding injection aims to empower the IRS to target the wealthiest individuals and address intricate cases that had previously overwhelmed the agency.

Political Controversy Surrounding IRS Funding

The allocation of additional funds to the IRS has sparked political debates, with Republicans expressing concerns that the agency might misuse these resources to burden small businesses and middle-class taxpayers. This contention led to a rollback of $20 billion in funding as part of an agreement related to the national borrowing limit.

Focus on Wealthy Taxpayers

To dispel concerns and emphasize the IRS’s commitment to targeting tax evasion among wealthy Americans and corporations, IRS Commissioner Daniel Werfel emphasized the complexity of the cases the agency is tackling, highlighting the need for additional resources.

Harnessing Artificial Intelligence for Enhanced Tax Enforcement

The IRS is now leveraging artificial intelligence to identify intricate patterns and trends in tax evasion, bolstering its ability to uncover concealed income within large partnerships. This approach has enabled the IRS to undertake comprehensive audits that were previously deemed too challenging.

Increased Audits and Scrutiny

As part of its AI-driven enforcement efforts, the IRS plans to launch examinations into 75 of the nation’s largest partnerships with over $10 billion in assets, all identified through AI analysis. Additionally, 500 compliance alerts will be sent in October to other significant partnerships, potentially leading to further audits.

Focus on Wealthy Taxpayers 2024

The IRS is intensifying its scrutiny of high-net-worth individuals in 2024. It is dedicating resources to pursue 1,600 millionaires believed to owe at least $250,000 in unpaid taxes.

Upcoming AI Applications

The IRS plans to expand its use of AI to investigate tax evasion related to digital assets and scrutinize how affluent taxpayers utilize foreign bank accounts to evade financial disclosures.

AI and Privacy Concerns

Critics have expressed reservations about the IRS’s use of AI, citing concerns over the security of taxpayer data. Grover Norquist, founder of Americans for Tax Reform, believes that the IRS might employ AI to distance itself from allegations of political bias or inequitable enforcement.

AI for Enhanced Auditing

The IRS is expected to deploy AI to identify “compliance threats” that have been elusive and reduce unnecessary audits. This technology will help the agency identify problematic areas within tax returns more efficiently.

Complexity of Large Partnership Tax Returns

Former IRS Commissioner John Koskinen emphasized that tax returns from significant partnerships are among the most intricate files processed by the agency. AI algorithms already in use by the IRS help detect issues, but the ability to train computers to analyze thousands of pages of tax returns with red flags will enhance the IRS’s audit selection process.