The head of the Internal Revenue Service (IRS) announced Friday that the agency has plans to shift its attention to the wealthy by leveraging AI and improved technology to identify sophisticated schemes to avoid taxes – thus reducing the burden on working-class taxpayers.
Capitalizing on Inflation Reduction Act (IRA) funding, IRS Commissioner Danny Werfel announced Sept. 8 the start of what he called a sweeping, historic effort to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations, and promoters abusing the nation’s tax laws – and using AI to do it.
“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,” Werfel said.
“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,” he continued, adding, “These steps are critical for the future of the nation’s tax system.”
The effort, building off work following last August’s IRA funding, will center on adding more attention on wealthy, partnerships and other high earners, the IRS said.
The changes will be driven with the help of improved technology as well as AI 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.
For the broader compliance work going on across the IRS, this will be an expansive effort with more details to be announced in the weeks and months ahead, the agency noted.
Specifically, the IRS said it will expand its Large Partnership Compliance (LPC) program, launched in 2021, to cover more of such partnerships, including hedge funds, real estate investment partnerships, large law firms and other industries.
“The IRS is now expanding the LPC program to additional large partnerships,” the agency announced. “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 IRS noted that by the end of the month, it will open examinations of 75 of the largest partnerships in the U.S. that, on average, have more than $10 billion in assets.