Regulation And Policy
As published on: interestingengineering.com, Monday 11 September, 2023.
As it looks for ways to effectively monitor the wealthiest Americans, the US Internal Revenue Service (I.R.S.) has begun employing artificial intelligence (AI) to tackle tax evasion at multibillion-dollar partnerships.
This is according to a report by The New York Times published on Friday.
The new technology will help simplify tax cases pertaining to hedge funds, private equity groups, real estate investors, and big law firms, allowing the tax agency to better deal with them.
Complex cases to unpack
“These are complex cases for I.R.S. teams to unpack,” Daniel Werfel, the I.R.S. commissioner, said in a briefing, according to the US news outlet. “The I.R.S. has simply not had enough resources or staffing to address partnerships; in a real sense, we’ve been overwhelmed in this area for years.”
Furthermore, by identifying high-risk taxpayers or businesses based on historical data, behavioral patterns, and other pertinent characteristics, AI can be used to anticipate possible tax evasion. This empowers tax officials to better focus their enforcement efforts.
Identity theft, false tax refund claims, and other forms of tax-related fraud can also be detected using fraud detection systems powered by AI.
Finally, natural language processing techniques can be used to analyze textual data, such as legal documents and tax regulations, to improve compliance and ensure that taxpayers are following the appropriate rules.
Concerns about privacy and data security
Despite its many useful applications, the use of AI in tax enforcement raises concerns related to privacy and data security, as tax authorities may need access a significant amount of financial and personal data to effectively use these technologies. It may also pose a threat to the enforcement of just and fair processes.
Americans for Tax Reform's founder and president Grover Norquist told The New York Times that the I.R.S. has a history of attributing its difficulties with the tax code on its algorithms. He claimed that using AI was just another tactic the I.R.S. will have in its arsenal to defend itself against substantiated claims of political bias or unequal enforcement procedures.
“This is one more way for them to put some distance in their decision-making,” Norquist told the news outlet. “They can say, ‘Oh, we’re not auditing people we don’t like. This is science.’”
The new initiative will be funded by the $80 billion allocated to the I.R.S. last year through the Inflation Reduction Act. The project is intended to assist the I.R.S. in increasing federal revenue by pursuing tax evaders and others who employ clever accounting approaches to get out of paying what they owe.
“This news stands in stark contrast to the approach taken by House Republicans, who want to allow wealthy tax cheats to continue business as usual, paying little to no tax and asking middle-class taxpayers to foot the bill,” told The New York Times Senator Ron Wyden of Oregon, the Democratic chairman of the Senate Finance Committee.