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Will the IRS Use AI in Tax Audits? 

May 8, 2024 | IRS, Tax

The Internal Revenue Service (IRS) is taking measures to increase tax enforcement for high earners this tax season by implementing the use of artificial intelligence (AI). That’s correct – SkyNet is going to audit your tax returns.  These efforts are meant to help the IRS’s compliance teams sort through tax returns more efficiently to identify possible violations. Since receiving billions in funding as a result of the Inflation Reduction Act, the IRS will use AI to specifically target wealthy taxpayers, including large partnerships and corporations.  

What Red Flags Can AI Identify on Tax Returns?

The Internal Revenue Service can conduct several types of audits on taxpayers returns. The IRS might spot a compliance issue or an audit can be random. AI can use predictive modeling to pick up on certain patterns and trends when choosing returns to audit. It automates the analysis of financial data and can detect irregularities, discrepancies, and inconsistencies. 

Like I said, SkyNet.

Some situations that might raise red flags with the IRS when it comes to high-earning filers can include:

  • Taking higher-than-average deductions               
  • Claiming large charity deductions
  • Moving assets illegally into offshore accounts
  • Failing to file tax returns but making expensive purchases
  • Making payments to what appear to be “shell” companies
  • Claiming residence in Puerto Rico without actually living there
  • Involvement in significant cryptocurrency exchanges

The IRS has announced that the Service will focus on certain priority areas for targeted compliance work in 2024, including the area of digital assets, FBAR violations, and those involving labor brokers. The use of AI-type models for data sourcing is nothing new — such tools have been used by the IRS since the 1980’s. Still, the new focus represents a fundamental change in the traditional audit process that will continue to evolve into the future.   

How Should You Handle an IRS Tax Audit?

If you are facing an IRS tax audit, you must understand the scope. For example, a mail audit is simply limited to a few items outlined on the audit letter you received from the IRS. Office and field audits require gathering documents requested by the IRS and preparing to answer detailed questions about your finances. Regardless of the audit you face, it’s important to have a skillful tax attorney by your side who can advocate on your behalf. 

The IRS will send a detailed examination report after your audit has been completed. If you disagree with the results of the IRS audit, you can submit an appeal. This appeal must be submitted thirty (30) days of the date specified on the letter sent by the IRS. Your formal protest must contain very specific information, including the reasons you disagree with each item and the facts and authority that support your position. An appeals employee will typically respond within ninety (90) days — and you will then usually have at least sixty (60) days to prepare for the appeals hearing.   

Contact an Experienced New York Tax Attorney

If you’re at risk of being audited by the IRS or have received notice of an audit, a knowledgeable tax attorney can help to guide you through the process. Offering trusted representation to individual taxpayers, business owners, and corporations, Brinen & Associates represents clients for a broad range of tax matters at both the state and federal levels, including audits. Call (212) 330-8151 or send us a message to learn more about how we can assist you.


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I formerly worked as a satellite employee from my home state of New Jersey. I ended my employment with my former employer in 2016. In 2018, I was sued by my former employer for $1.1 million in Illinois State Court. I was referred to Brinen & Associates, LLC by a friend who is a client of the firm. Brinen & Associates, LLC came highly recommended. I contacted Joshua Brinen and then had a consultation at his office with his colleague Mark White. Together, Messrs. Brinen and White explained my options...

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