The Inflation Reduction Act increased the IRS's budget. The agency used these new funds not only to hire additional staff but also to develop AI research tools. This AI is designed to identify high-income and high-asset taxpayers who aren't current on their tax bills.

In July 2023, the IRS announced it had already collected $38 million in delinquent taxes from approximately 175 high-income taxpayers. The IRS then announced plans to expand this program.

The potential revenue gains from the IRS's increased audits are substantial. A 2021 report found that, on average, the top 1 percent of earners failed to report up to 20 percent of their income.

AI and Taxes

Understandably, the IRS has not released specific details about its new AI programs. What is known is that these programs are designed to find patterns and trends that can help IRS agents identify where to look for unreported income. 

The IRS announced plans to expand its AI-backed investigations of high-income taxpayers beginning in Fall 2023. In February 2024, the agency announced it was looking into approximately 125,000 instances of high-income taxpayers failing to file tax returns since 2017. 

In many of these cases, the IRS identified failure to file due to inconsistencies flagged due to information from third parties, such as W-2s or 1099s. The IRS expected to send approximately 20,000 to 40,000 CP59 notices, which inform taxpayers they've failed to file a tax return weekly. 

That AI-flagged potential issues doesn't change interest or penalties on late taxes. It also doesn't change a taxpayer's deadline to respond to the IRS when they receive notices.

Millions Collected, Possibly More to Follow

In the February 2024 press release, the IRS stated it had already collected nearly $500 million in unpaid taxes. Current efforts, supported by its AI program, indicate financial activity of more than $100 billion. How much of this can be taxed and what can be deducted is unknown, but the IRS estimates potentially hundreds of millions of dollars in taxes.

AI makes it easier for the IRS to identify delinquent taxpayers. If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.