IRS Using AI to Target the Ultra-Wealthy for Tax Violations

The Internal Revenue Service (IRS) is adding artificial intelligence tools to crack down on potential tax violations, the agency announced on Friday. The IRS claims it will be focusing on wealthy taxpayers who have used “sophisticated schemes to avoid taxes,” instead of burdening average people with “no-change” audits.

Artificial intelligence will reportedly change the way the IRS issues audits, prioritizing high-income taxpayers who have a total income of $1 million and will identify which individuals have more than $250,000 in recognized tax debt. By implementing AI, the IRS said in a press release it “will help IRS compliance teams better detect tax cheating, identify emerging compliance threats and improve case selection tools.” the IRS said in a press release.

For those earning less than $400,000 per year, the IRS says it will ensure the audit rates do not go up, saying the Earned Income Tax Credit was put in place to help workers who earn modest incomes, according to the release. The agency clarified that AI will be used to initiate investigations into 75 of the largest U.S. partnerships that document assets that exceed $10 billion on average.

It will reportedly be used to target hedge funds, real estate investment partnerships, and law firms who may have skirted the rules, amounting to roughly 1,600 taxpayers in total who “owe hundreds of millions of dollars in taxes.”

IRS Commissioner Daniel Werfel said at a press conference: “New tools are helping us see patterns and trends that we could not see before, and as a result, we have higher confidence on where to look and find where large partnerships are shielding income,” Fortune reported.

Last month, the IRS hired nearly 90,000 additional full-time staff members, the largest increase in more than a decade, to improve its taxpayer services and support its efforts to incorporate AI to target tax evasions. The move comes after the IRS received $80 billion in funding last year toward the Inflation Reduction Act but it caused contention with Republicans who claimed the IRS will target small businesses and middle-income taxpayers using the funds. As a result, Republicans were successful in pulling back $20 billion in funds from the IRS earlier this year as a compromise for increasing the borrowing limit and avert a default.

Werfel said in the IRS press release that the agency is committed to targeting the wealthy and claims the newly added AI tools will hold those individuals accountable for what they owe. At least, for now. 

“I am committed to reversing this trend, making sure that new funding will mean more effective compliance efforts on the wealthy, while middle- and low-income filers will continue to see no change in historically low pre-IRA audit rates for years to come,” he said.

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