September 2023

IRS To Audit Wealthy Taxpayers Using Artificial Intelligence


Capitalizing on funding from the Inflation Reduction Act, the Internal Revenue Service announced it would begin to shift more attention onto high-income earners, partnerships, large corporations, international taxpayers, and promoters abusing the nation’s tax laws.    Taxpayers should also expect increased audits for those who own cryptocurrency.   The IRS will use the new funding to increase audit rates for high earners using improved technology, including Artificial Intelligence.  As part of its efforts, the IRS will ensure that audit rates will not increase for those earning less than $400,000 a year.

IRS Commissioner Danny Werfel states, “There is a sea change taking place at the IRS in every aspect of our operations.  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.  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. These steps are critical for the future of the nation’s tax system.”

In 2021, the IRS launched the first stage of its Large Partnership Compliance (“LPC”) program with examinations of some of the largest and most complex partnership returns in the filing population.  The IRS will now expand the LPC program to additional large partnerships with the help of A.I., collaborating with data scientists and machine learning experts to identify potential compliance risks with partnerships, corporations, and international taxpayers.

The use of A.I. is not new for the IRS.  Since 2018, the IRS has taken an agency-wide data driven mindset to aid in its compliance and enforcement efforts.  Previously, the agency was forced to invest in data analytics and A.I. technology because it lacked funding to hire agents to audit high-net worth taxpayers.  But with the additional funding from the Inflation Reduction Act, the IRS now has the resources to both invest in and staff its technology efforts.