The U.S. Government Accountability Office (GAO) reported recently on how Artificial Intelligence (AI) may help the IRS close its tax gap. The tax gap represents the hundreds of millions of dollars in tax that goes unreported and unpaid each year. The GAO reported three areas in which AI could help the IRS identify those taxpayers who are not paying their fair share.
First, AI can target the under-reporters: those people who file returns but are likely to have errors and ultimately owe additional taxes. A second use of AI will help the IRS identify taxpayers who incorrectly claim refundable credits, such as the Earned Income Tax Credit. The third use of AI would be to help prioritize partnership returns for audit. Businesses formed as partnerships can pass income and losses to partners, instead of being taxed as corporations. The significant increase in partnerships over the years has made it more difficult for the IRS to identify taxable income and catch possible tax cheats.
It is important for taxpayers to ensure their tax returns are prepared accurately to avoid being a target of an audit based on identifying factors found through AI. To read the complete GAO report, click here.
