IRS deploys AI for groundbreaking tax enforcement crackdown.
The Internal Revenue Service (IRS) has announced an exciting new initiative to enhance tax enforcement using cutting-edge technologies, including artificial intelligence. This “sweeping, historic” effort aims to catch tax evaders more effectively and restore fairness to the tax system.
“There is a sea change taking place at the IRS in every aspect of our operations,” IRS Commissioner Danny Werfel said in a Sept. 8 statement, which notes that the tax agency has completed a top-to-bottom review of its enforcement efforts and is girding to catch people “abusing the nation’s tax laws,” thanks in part to cutting-edge tech.
“The changes will be driven with the help of improved technology as well as Artificial Intelligence that will help IRS compliance teams better detect tax cheating, identify emerging compliance threats and improve case selection tools to avoid burdening taxpayers with needless ‘no-change’ audits,” Mr. Werfel said.
The new enforcement thrust will primarily target higher-earning Americans and big corporations, with a promise not to increase audit rates for individuals earning less than $400,000 per year.
This commitment addresses concerns raised by Republicans about tougher enforcement on working-class taxpayers due to increased IRS funding. The IRS will prioritize cases involving taxpayers earning over $1 million but with recognized tax debt of more than $250,000.
The IRS has already identified around 1,600 millionaires who owe hundreds of millions of dollars in taxes, thanks to the deployment of cutting-edge technology.
The IRS’ AI Facelift
The IRS expects AI tools to significantly enhance tax enforcement for large partnerships.
To achieve this, the agency has utilized complex computer algorithms to identify targets for tax enforcement.
The IRS has already leveraged “cutting-edge machine learning technology” to flag and investigate 75 of the largest partnerships in the United States, each with over $10 billion in assets on average.
“With the help of AI, the selection of these returns is the result of groundbreaking collaboration among experts in data science and tax enforcement, who have been working side-by-side to apply cutting-edge machine learning technology to identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage,” the IRS said in the announcement.
The Inflation Reduction Act signed into law by President Joe Biden in 2022 initially allocated around $80 billion to expand the IRS’ budget over ten years. However, this drew criticism from Republicans concerned about targeting ordinary Americans instead of wealthier taxpayers. The funding has since been reduced to around $60 billion due to a debt-ceiling deal.
Part of the additional funding will be used to give the IRS a technological facelift, as outlined in a 150-page strategic operating plan (pdf) released in April. The plan aims to deliver “cutting-edge technology, data, and analytics to operate more effectively.”
Mr. Werfel stated that artificial intelligence tools would be purchased with a portion of the $60 billion infusion, allowing the IRS to focus enforcement on taxpayers trying to avoid taxes rather than those trying to pay what they owe.
In addition to improving customer service through chatbots, online portals, and electronic notice responses, the IRS expects its technology-driven enforcement to boost tax collections and revenue for government programs.
According to IRS estimates, taxpayers in America pay around 85 percent of the total taxes they owe, leaving a significant tax gap. The IRS estimated the annual tax gap to be around $496 billion between 2014 and 2016.
Treasury noted in a pdf that a lack of modern digital tools has negatively impacted various aspects of the IRS’ operations. The agency will continue to improve its technology to enforce tax laws.
More Details of New Enforcement Thrust
Besides expanding high-income and large partnership compliance, other key elements
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