The Internal Revenue Service (IRS) has launched a “sweeping, historic” tax enforcement project that would use artificial intelligence and other cutting-edge technologies to detect tax evaders more effectively, due to a fresh financial boost… of your tax dollars at work. Isn’t that nice? <sarcasm>
“There is a sea change taking place at the IRS in every aspect of our operations,” IRS Commissioner Danny Werfel said in a statement released on September 8th, noting that the tax agency has completed a top-to-bottom review of its enforcement efforts and is bracing to catch people “abusing the nation’s tax laws,” thanks in part to cutting-edge technology.
“The changes will be driven with the help of improved technology as well as Artificial Intelligence that will help IRS compliance teams better detect tax cheating, identify emerging compliance threats and improve case selection tools to avoid burdening taxpayers with needless ‘no-change’ audits.”
The new enforcement push is reported to target higher-income Americans and large organizations, with the IRS promising not to raise audit rates for people earning less than $400,000 per year.
This has been an often repeated commitment in the face of Republican claims that tens of billions of dollars in new IRS budget will subject working-class people to greater scrutiny.
As part of the new enforcement drive, the IRS stated that it will prioritize investigations involving taxpayers earning more than $1 million but owing more than $250,000.
VISIT OUR YOUTUBE CHANNELAccording to the IRS, as it widens its drive to target higher-earning Americans, it has already identified 1,600 or so millionaires who owe hundreds of millions of dollars in taxes, thanks in part to the use of cutting-edge technology.
The IRS stated that it expects AI techniques to aid with the taxation of large partnerships in particular.
To that purpose, the government has already utilized complicated computer algorithms to assist in selecting targets for tax enforcement.
According to the IRS, “cutting-edge machine learning technology” has already assisted the agency in identifying and opening investigations against 75 of the largest partnerships in the United States, each with over $10 billion in assets on average.
The IRS revealed in the announcement:
“With the help of AI, the selection of these returns is the result of groundbreaking collaboration among experts in data science and tax enforcement, who have been working side-by-side to apply cutting-edge machine learning technology to identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage.”
The Inflation Reduction Act, signed into law by President Joe Biden in 2022, initially included around $80 billion to expand the IRS’ budget over ten years, drawing Republican ire that some of that money would go to hiring an “army” of tax enforcers who would go after low-hanging fruit and target ordinary Americans rather than wealthier, more financially sophisticated taxpayers who are more difficult to audit.
That $80 billion in additional IRS funding has since been reduced to around $60 billion as a result of the debt-ceiling agreement reached by President Biden and House Majority Leader Kevin McCarthy (R-Calif.), which clawed back $10 billion from the tax agency’s appropriations in calendar years 2024 and 2025.
Part of the money being injected into the IRS will be used to give it a technological facelift, according to a 150-page strategic operational plan unveiled in April, which promises to use some of the monies to provide “cutting-edge technology, data, and analytics to operate more effectively.”
Mr. Werfel stated in a memo to Treasury Secretary Janet Yellen that a portion of the $60 billion cash infusion would be used to purchase artificial intelligence tools, and that “technology and data advances will allow us to focus enforcement on taxpayers trying to avoid taxes, rather than taxpayers trying to pay what they owe.”
The IRS emphasized the customer service side of the technology upgrade in the plan, promising to improve the taxpayer experience by deploying chatbots, online portals, and electronic notification answers.
However, according to the plan, the agency expects its technology-driven enforcement to increase tax collections and money for government programs.
According to Mr. Werfel’s most recent remarks on September 8, that plan is quickly becoming a reality.
“The nation relies on the IRS to collect funding for every critical government mission—from keeping our skies safe, our food safe and our homeland safe,” Mr. Werfel explained. What about the citizens who don’t want to keep paying for programs that they will never use in their entire lifetime?
“It’s critical that the agency addresses fundamental gaps in tax compliance that have grown during the last decade,” he added.
According to IRS estimates, taxpayers in America pay approximately 85 percent of the total taxes owed, with the difference between what is owed and what is paid, referred to as the tax gap. The IRS estimates that the annual tax shortfall was roughly $496 billion between 2014 and 2016.
