From Chatbots to Audits: How the IRS Will Use AI This Tax Season
The IRS has plans to increase its use of AI. Here’s how the agency will do it and what it could mean for taxpayers.
As part of IRS efforts to increase tax enforcement for wealthy taxpayers, the agency is implementing the use of artificial intelligence (AI) to identify possible violations on high-income tax returns.
“We will start to see patterns and trends, and activity that we can link with tax evasion that we couldn’t previously,” IRS Commissioner Danny Werfel said of the agency’s AI use to crack down on so-called “wealthy tax cheats.” Werfel described artificial intelligence and the types of predictive modeling it provides as a “huge tool.”
The IRS will also deploy AI and similar automated technology to improve customer service for taxpayers. However, given a history of biased audit algorithms and other missteps at the agency involving taxpayer records and data, some may wonder whether the IRS’ use of AI will help or hurt.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
AI use for IRS audits
AI technology will help the agency sort through tax returns to identify tax evaders. People not paying the taxes they owe is a longstanding problem. The most recent numbers from the IRS reveal that the tax gap (the difference between taxes owed and taxes paid) jumped to $688 billion. The agency sees AI as a tool to help reduce that gap.
However, controversy and concern surround the IRS' use of AI in identifying returns for tax audits. This is largely because the algorithms underlying artificial intelligence, used to identify tax returns for audit, have sometimes produced biased results.
For example, Kiplinger previously reported on a study conducted with support from the U.S. Treasury Department and using IRS data. The findings showed Black taxpayers were selected for audits at significantly higher rates than other taxpayers. Some lawmakers, including Senate Finance Committee Chair Ron Wyden (D-Ore.), have stressed that the agency must do better.
“It’s really important to make sure that there’s better oversight and transparency and accountability,” Wyden told reporters.
Senate Finance Committee member James Lankford (R-Okla.) has also expressed concern about AI use in taxpayer targeting. Lankford introduced a bill that would require taxpayers to be given opportunities to appeal some determinations made by AI. Under the proposal, decisions made by AI wouldn’t be automatically reversed. Instead, human review would be required. So, Sen. Lankford says, the bill wouldn't be a “get out of jail free” card for wealthy tax evaders.
IRS audit red flags for wealthy filers
The IRS has looked at several factors during its efforts to increase tax enforcement for millionaires and large partnerships. AI can pick up on these patterns and trends when selecting returns for audits. So, wealthy taxpayers should be aware of the agency’s focus areas for enforcement to avoid audit triggers and red flags. Some circumstances that may put you on the IRS’ radar:
- Claiming residence in Puerto Rico (without actually having real residency there)
- Claiming exemptions based on treaty rules between the U.S. and Malta.
- Failing to file tax returns but making luxury purchases
- Illegally moving assets into offshore accounts
- Contractors claiming to make Form 1099-MISC/1099-NEC payments to subcontractors that appear to be “shell” companies
- FBAR violators (those who have foreign bank accounts but do not file a Report of Foreign Bank and Financial Accounts)
- Being involved in significant cryptocurrency exchanges
Other circumstances may trigger an audit, including but not limited to, deducting large charitable contributions and failing to report all taxable income.
Chatbots for IRS customer service?
The IRS has already implemented chatbots to improve customer service, and the agency is expanding the technology to help more taxpayers. These chatbots can help taxpayers resolve certain issues, such as what to do if they’ve received an IRS notice and need more time to respond.
According to the IRS, chatbots have already handled more than 450,000 interactions. Of those interactions, the agency says 42% were resolved without a live customer service representative. That means taxpayers didn’t need to wait on hold. It also means agents, who would have otherwise been answering phone calls, were able to focus their time on other duties.
AI use at the IRS: Bottom line
It’s no secret that the IRS has turned its attention to high-earners, including large partnerships, since receiving billions in funding from the Inflation Reduction Act. So, wealthy taxpayers may have increased odds of facing an audit.
However, it’s too soon to say whether the IRS’ use of AI for identifying possible cases of tax evasion will target law-abiding wealthy filers. It's also too early to know if taxpayers will be helped by AI-driven chatbots.
But one thing is for sure: There’s never been a more important time for high earners to follow tax laws. Audit or not, if you’re complying with IRS rules and regulations, you can hopefully worry a little less about AI and the IRS' focus on high earners.
Related Content
- IRS Services Improve but Are Still Lacking
- IRS Ramps Up Tax Enforcement for Millionaires
- IRS Promises Fewer Audits of Earned Income Tax Credit Claims
-
Forget FIRE: Why ‘FILE’ Is the Smarter Move for Child-Free DINKsHow shifting from "Retiring Early" to "Living Early" allows child-free adults to enjoy their wealth while they’re still young enough to use it.
-
7 Tax Blunders to Avoid in Your First Year of RetirementA business-as-usual approach to taxes in the first year of retirement can lead to silly trip-ups that erode your nest egg. Here are seven common goofs to avoid.
-
How to Plan for Social Security in 2026's Changing LandscapeNot understanding how the upcoming changes in 2026 might affect you could put your financial security in retirement at risk. This is what you need to know.
-
10 Cheapest Places to Live in WashingtonProperty Tax Is Washington your go-to ski destination? These counties combine no income tax with the lowest property tax bills in the state.
-
3 Major Changes to the Charitable Deduction for 2026Tax Breaks About 144 million Americans might qualify for the 2026 universal charity deduction, while high earners face new IRS limits. Here's what to know.
-
Holiday Tax Scams 2025: 'Tis the Season to be WaryTax Scams Navigating tax tricks of the holiday season may be daunting, but don't let that destroy your festive spirit
-
Retirees in These 7 States Could Pay Less Property Taxes Next YearState Taxes Retirement property tax bills could be up to 65% cheaper for some older adults in 2026. Do you qualify?
-
Estate Tax Quiz: Can You Pass the Test on the 40% Federal Rate?Quiz How well do you know the new 2026 IRS rules for wealth transfer and the specific tax brackets that affect your heirs? Let's find out!
-
Law Reversal Looming? Trump Eyes 2026 Gambling Winnings Tax ChangeTax Deductions It's no secret that the IRS is coming after your gambling winnings in 2026. But how long will that last?
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
