Artificial Intelligence Used to Combat Tax Evasion

The IRS’ efforts to identify abusive tax schemes is now being bolstered by the use of AI.

Most people don’t realize the extent to which artificial intelligence (AI) is utilized in our daily lives. Even those of us without Alexa devices and “Smart Homes” are using AI – in our Google searches, mobile banking, GPS systems, Amazon product recommendations, Pinterest, LinkedIn, Facebook, and cellphone chatbots, just to name a few.

Although the development of AI is unlikely to replace tax advisors in the near future (or so we hope!), its benefits in tax preparation and compliance is indisputable. Companies use AI to create models that analyze business trends, simulate risks, and improve their internal efficiency, among other things.

The IRS is using AI as well.

Identifying taxpayer noncompliance

Manual investigation of tax-related crimes is soon to be a thing of the past – the IRS recently signed a $99 million contract with Palantir Technologies deploy AI to help the government detect money laundering and tax fraud, locate hidden assets, prosecute identity theft, and identify other cases involving tax noncompliance.

AI tools now assist the IRS in mining data from tax returns, bank reports, and property statements. The IRS has also admitted to mining social media accounts to gather evidence that a taxpayer is underreporting their income. So watch what you post online!

Increasing likelihood of success of prosecutions and appeals

The IRS is also using AI to increase its overall efficiency, particularly in:

  • Streamlining its internal procedures
  • Identifying cases which are likely to succeed, and which are not worth pursuing
  • Predicting the likelihood of a successful appeal
  • Determining why their appeals were successful or not
  • Creating statistical models and analyses for tax auditing

Protecting IRS databases

After the 2018 tax day hardware crash, which affected roughly 20 million lines of computer code dating back to 1960, the IRS finally got the message that it was time to upgrade and protect its aging infrastructure. Plans are to use an AI data watchdog to remedy this problem.

Professional Business Tax Planning and Representation

Taxpayers need to be extra vigilant now that the IRS has entered the modern age. The Moskowitz, LLP team of tax lawyers, CPAs, enrolled agents and other tax professionals offer comprehensive tax planning services and representation in a wide variety of tax matters, including civil and criminal tax investigations and disputes, and tax penalty relief. Contact our San Francisco office today for a consultation.