The U.S. Internal Revenue Service (IRS) is deploying artificial intelligence (AI) to crack down on potential tax violations by wealthy taxpayers and large business partnerships. The agency said it will use AI to launch investigations into 75 of the largest partnerships in the U.S., which have assets averaging more than $10 billion. These include hedge funds, real estate investment partnerships, and law firms that have used sophisticated schemes to evade taxes.
The IRS said it will also target individuals with incomes of more than $1 million but tax debts of more than $250,000. According to the agency, there are about 1,600 taxpayers who fall under this category and owe hundreds of millions of dollars in taxes. According to the IRS, the agency will use machine learning and other tools to identify and prioritize these cases.
The new effort is part of the Biden administration’s plan to raise billions of dollars in revenue over the next decade through new tax compliance measures. The administration has proposed investing $80 billion over 10 years in the IRS to modernize its technology, hire more staff and expand its enforcement capabilities. The IRS said it has received $3 billion from the Inflation Reduction Act, which took effect in March 2023, to strengthen its operations.
The commissioner of the IRS, Danny Werfel, said in a statement that the new funding will help reverse the trend of low audit rates for wealthy filers, which he said was caused by years of underfunding. He said he is committed to ensuring that the new funding leads to more effective compliance among the wealthy, while audit rates for middle- and low-income taxpayers will not change in the coming years.
The use of AI to combat tax evasion has been welcomed by some experts and lawmakers as helping to level the playing field and ensure fairness in the tax system. However, concerns have also been raised about privacy, accuracy, and oversight. Some critics have argued that the IRS should not rely too heavily on AI without human review and intervention and that it should be transparent about how it uses and safeguards the data it collects.
The IRS said it will follow strict rules and procedures to protect taxpayers’ rights and privacy, and that it will only use AI as a tool to assist its auditors and investigators, not as a replacement for them. The agency also said it will work with Congress and other stakeholders to ensure accountability and oversight of its AI initiatives.