IRS Uses AI to Fight Tax Evasion, Millionaires Dodging Taxes

The Internal Revenue Service (IRS) has a new partner in assisting the crackdown on illegal tax practices: artificial intelligence.

The agency is now using AI to investigate tax evasion in large partnerships, including hedge funds, private equity groups, real estate investors, and major law firms, The New York Times reported. The initiative is part of the IRS’s efforts to enhance its ability to tackle and address nuanced cases that had previously overwhelmed the agency. The IRS plans to initiate examinations into 75 of the nation’s largest partnerships identified with AI assistance.

“These are complex cases for I.R.S. teams to unpack,” Daniel Werfel, the I.R.S. commissioner, told the outlet. “The I.R.S. has simply not had enough resources or staffing to address partnerships; in a real sense, we’ve been overwhelmed in this area for years.”

Fueled by $80 billion allocated through the Inflation Reduction Act, the agency aims to increase federal revenue by targeting tax evasion and sophisticated accounting practices used to avoid tax payments — cases that in the past the IRS didn’t have the resources to handle given limited resources.

The focus on partnerships is part of a broader IRS effort to scrutinize wealthier taxpayers in 2024, focusing on pursuing millionaires with significant unpaid taxes. Additionally, the IRS intends to increase scrutiny of digital assets and investigate how high-income taxpayers use foreign bank accounts to avoid disclosing financial information, according to the report.

This isn’t the first time AI has piqued the interest of government institutions. As the availability and use of AI have become mainstream, countless industries have adopted the technology to carry out everyday tasks or combat ones that were previously onerous.

Last week, California Governor Gavin Newsom issued an executive order calling on the California Department of Technology and other agencies to study the use of generative AI by state workers, create training programs for its utilization, as well as recognize the potential risks and benefits of emerging AI technology for the state government, the San Francisco Chronicle reported.

“This is a potentially transformative technology — comparable to the advent of the internet — and we’re only scratching the surface of understanding what GenAI is capable of,” Newsom said in a statement, per The Chronicle. “We recognize both the potential benefits and risks these tools enable.”

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