The United States Internal Revenue Service (IRS) is cracking down on tax evasion among the ultra-wealthy, and it’s using artificial intelligence to do it. In a statement published Friday, the agency shared that it’s using funds from the 2022 Inflation Reduction Act to implement AI tools that will double-check high earners and partnerships for tax compliance.
Details are relatively sparse, but it appears the point of the AI is to adjust how the IRS doles out audits. Taxpayers who earn at least $1 million per year and owe $250,000 or more in taxes will become the focus, amounting to roughly 1,600 earners in the US. That might not sound like a lot, but the last time the IRS trained its eye on just 175 wealthy earners, it recovered more than $38 million in taxes.
The agency will also zero in on hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms, and other business relationships known to hold more than $10 billion in assets while dodging certain tax responsibilities. AI will help the IRS define, identify, and investigate these affiliations for compliance risk related to partnership tax, general income tax, accounting, and international tax. Partnerships with just $10 million in assets will also garner more scrutiny, thanks to a growing number of discrepancies between their end-of-year balances and the balances they report at the beginning of the following year.
“Anchored by a deep respect for taxpayer rights, the IRS is deploying new resources towards cutting-edge technology to improve our visibility on where the wealthy shield their income and focus staff attention on the areas of greatest abuse,” said IRS Commissioner Danny Werfel. “We will increase our compliance efforts on those posing the greatest risk to our nation's tax system, whether it's the wealthy looking to dodge paying their fair share or promoters aggressively peddling abusive schemes.”
The introduction of AI is just one part of an “expansive effort” to shift the agency’s focus away from working-class earners and toward the ultra-wealthy. In addition to leveraging AI, the IRS will introduce “fairness safeguards” for filers who claim the Earned Income Tax Credit (EITC). (The IRS explains that EITC claimants have unjustly become the focus of its audits in recent years while audit rates among high earners have fallen.) More generally, the IRS will also ensure audit rates do not increase among filers who earn less than $400,000 per year.
Most of these changes, including those involving AI, will occur at the beginning of fiscal year 2024—as will the tentative debut of the new IRS e-filing program.
