What if the IRS's new artificial intelligence system designed to catch tax cheats is actually missing the biggest offenders while unfairly targeting others?
The IRS has been using AI tax enforcement technology since 2019, but it's not as smart as you might think. While the government is using artificial intelligence to pick who gets audited and try to collect more taxes, government watchdogs say this technology has serious problems - and it might not be fair to everyone.
If you're wondering whether AI tax enforcement will affect you, it depends mostly on how much money you make and your tax situation. Right now, the IRS is using its AI mainly against rich people and big businesses, but the technology doesn't work as well as they hoped.
What IRS AI Tax Enforcement Really Does
Forget what you've seen in movies about AI instantly reading every tax return. The truth is much simpler. The IRS uses basic computer programs that follow rules written by humans. This system, called the Dependent Database, looks for problems on tax returns.
When this computer finds a problem, it sends the return to another system called SRA. This second system gives each tax return a "risk score." The IRS then starts with the highest risk scores and works down the list until they have enough audits to do.
Who AI Tax Enforcement Currently Targets:
- Rich people who make over $1 million and owe more than $250,000 in back taxes
- Big business partnerships (there are 600% more of these than in 2002)
- People claiming tax credits like the Earned Income Tax Credit
- Rich people who didn't file their tax returns at all
The Big Problems Government Watchdogs Found
Here's what government investigators discovered when they looked at the IRS's AI tax enforcement systems:
Poor Record-Keeping: The Government Accountability Office found that the IRS didn't finish documenting how their AI systems work. This means they can't keep track of what they're doing or make sure it's working right.
Unfair Treatment: Government research shows the AI systems might unfairly target certain groups of people, especially minorities, even when they're not trying to cheat on taxes.
Bad Models: The systems that pick business partnerships for audits were built using the wrong data and wrong assumptions, making them bad at finding real tax problems.
No Transparency: The IRS won't tell anyone how they train their AI systems, so outside experts can't check if they're working properly.
Who's Actually Getting Targeted by AI Tax Enforcement
Even with all these problems, the IRS is still using AI tax enforcement to go after specific groups:
Rich People: The agency collected $520 million from wealthy individuals and partnerships using AI-enhanced enforcement. They went after people who didn't file returns or pay their tax bills.
Big Partnerships: The IRS started audits of 76 of the biggest partnerships in the country, including hedge funds, real estate companies, and big law firms.
Tax Credit Claims: The agency uses both people and AI to pick who gets audited for claiming the Earned Income Tax Credit, though this has caused fairness concerns.
But here's the kicker: when the IRS audits big partnerships, most of the time they don't find any problems. This suggests the AI isn't very good at identifying real tax cheaters.
What This Means for Regular Taxpayers
If you're not super rich or involved in complicated business deals, current AI tax enforcement probably isn't looking at you specifically. The IRS has limited people and resources, so they're focusing their AI on cases that could bring in the most money.
But that doesn't mean you're totally safe. The AI systems look for these warning signs at all income levels:
- Income that doesn't match what your employer or bank reported to the IRS
- Really big deductions compared to how much money you make
- Self-employment income that looks weird compared to similar businesses
- Cash businesses where it's easier to hide income
What Staff Cuts Mean for AI Tax Enforcement
Treasury Secretary Scott Bessent recently told Congress that AI would help "improve tax collection" after the IRS fired over 11,000 employees (that's 11% of their workers). But this isn't part of some master plan to replace people with robots - they're just trying to keep doing their job with way fewer people.
The truth is that AI tax enforcement right now helps human agents rather than replacing them. The technology helps decide which cases are most important, but real people still do the actual auditing and tax collection work.
How to Stay Safe in the AI Tax Enforcement World
Even though current AI systems have problems, they're still being used to pick who gets audited. Here's how to keep yourself off their radar:
Keep Great Records: AI systems are really good at comparing what you reported to what banks and employers told the IRS. Make sure all your numbers match exactly.
Don't Get Crazy with Deductions: Weird deductions compared to your income can make the system flag you, even if they're totally legal.
File Your Taxes on Time: If you're always filing late, that can get you noticed and make you more likely to get picked for review.
Fix Problems Fast: If you owe back taxes or haven't filed returns, take care of it before the AI systems make your case a priority.
What's Coming Next for AI Tax Enforcement
The IRS plans to keep expanding how they use artificial intelligence, but the government watchdogs' reports show they need to fix a lot of problems first. The agency has agreed to make changes based on watchdog recommendations, but that takes time.
What to Expect:
- Better AI for auditing business partnerships
- Improved systems for catching fake tax credit claims
- Better data analysis for wealthy taxpayers
- Continued focus on rich people and complex businesses
The Bottom Line on AI Tax Enforcement
The IRS's current AI tax enforcement is way more limited and messed up than they want you to know. While the technology is helping them find some big targets, it's not the super-smart system that should worry regular taxpayers.
But here's the thing: the IRS is spending a lot of money on AI and data analysis to get better at tax enforcement. Even with all the current problems, the technology gets smarter every year.
If you have tax problems - like unfiled returns, back taxes, or questionable stuff on your return - don't assume the AI won't eventually find you. The systems might be flawed now, but they're getting better at finding people who owe money.
The smart move is to fix tax problems now rather than hoping the AI tax enforcement systems won't notice you. Even broken AI is better than the old manual systems the IRS used before, and waiting just makes your problems bigger and more expensive to fix.
If you find yourself with tax problems of any kind, don't hesitate to contact us for help and guidance. That's what my team and I are here for.
You can contact me by one of the methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your specific issues and solve them. You can also click here to book a free consultation.
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