The IRS is using some of its $80-million windfall from last year’s Inflation Reduction Act to bring AI to bear in tracking down taxes not paid by hedge funds, real estate investors, limited liability partnerships, and wealthy individuals, The New York Times reported.
Those cases can be too complex for typical auditors. They also can require enormous amounts of time from teams of specialists. Tax cheats often count on the IRS’s lack of enough capable auditors to evade tax justice.
“These are complex cases for the IRS teams to unpack,” IRS commissioner Daniel Werfel told a press briefing earlier this month. “The IRS simply has not had enough resources or staffing to address partnerships. We’ve been overwhelmed in this area for years.”
AI can spot patterns and trends, Werfel noted, guiding the IRS to the most likely places where partnerships are hiding income. With those leads, the IRS is more likely to be able to muster the resources to launch a successful audit.
As a result, the IRS will begin audits of 75 of the largest U.S. private partnerships, all of which have assets of at least $10 billion, by the end of this month, Werfel announced. In October, five hundred more partnerships will receive letters notifying them of impending audits.
In addition, the agency is tasking 500 agents to dog 1,600 millionaires, each of which the IRS believes owes at least $250,000 in unpaid taxes.
Using AI to scan thousands of pages of returns that humans have flagged for a closer look would make it easier for the IRS to determine which are the most likely audit prospects, former IRS commissioner John Koskinen told the NYT.
“Up to now, those partnerships have been impenetrable,” he added.
AI also can compare partnerships to see if the taxes of one look strangely different from the majority.
Since 2007, fewer than 1 percent of the most complex tax returns have been audited, according to a July report by the Government Accountability Project. Because the agency has the resources to mostly audit simpler returns, 80 percent of audits find no additional taxes to collect.
TRENDPOST: Republicans in Congress protested additional money for the IRS, claiming it would be spent to hire squads of armed agents who would harass Mom and Dad. Using AI instead neuters those complaints to a degree and deploys the money much more efficiently: AI not only works faster than people, it does its work without carrying a sidearm.