Big surprise… we’re talking about AI again, like the rest of the world right now, but this time, it might affect Mount Vernon people’s IRS standing… maybe even yours.
The tax agency is undergoing a digital transformation that’s as significant as it is unsettling. With the deployment of AI (and millions of taxpayer dollars), your “favorite” government agency is becoming a more formidable force in the pursuit of unpaid tax dollars.
The tax gap – the difference between taxes owed and taxes paid – is a yawning chasm. Estimates suggest it’s somewhere around 688 billion, and the IRS is determined to close that gap with the help of AI.
Really, it’s a noble effort, but for those of you who tend to experience tax return issues already, this could be another hurdle for you.
There are a few implications for you to be aware of, because with technology getting more advanced, we all have to be more careful.
How does AI and auditing work? It’s all about data. AI systems compare your tax return to information from banks, employers, and other third-party sources. Discrepancies, no matter how small, can trigger a closer look. And, AI is learning to spot patterns that indicate potential tax evasion, meaning the IRS will be able to better identify which tax returns are most likely to have these discrepancies. Much like a tax auditor, just more scrutinous and less prone to error (just what we want, right?).
The IRS has not disclosed fully how their AI algorithms target taxpayers for auditing, or how the AI auditing process fully works. Transparency will most definitely become necessary, as questions about AI’s methods surface with regard to targeting specific populations.
Who’s in the crosshairs? Historically, the IRS has focused on lower-income taxpayers. But that’s had a massive change this past year. With the help of AI, the agency is shifting its attention to higher-income individuals and complex business structures. If you’re in one of those circumstances, chances are you’re on the radar.
And don’t forget about cryptocurrencies, NFTs, and other digital assets that have been under greater scrutiny the past few years. Those as much as anything else will get the IRS’s attention (especially if you’re not carefully following the tax rules surrounding them).
AI is continually evolving, but that also means it has weaknesses. The positive side of using AI and auditing software: AI brings a definite level of improvement to the auditing process. For example…
- AI can improve the efficiency and accuracy of the audit process. By automating routine tasks, so auditors can focus on more complex cases. This could potentially lead to shorter audit times and fewer errors.
- AI and auditing are helping the IRS change their workforce for the better. The new breed of auditor is a hybrid of accountant and tech expert. This means they’ll be even better equipped to understand and challenge complex tax returns.
But there are challenges that come with AI and auditing too (and they’re probably ones that jumped to your mind first). With the intention of making the auditing process better, it could potentially complicate things, because…
- AI is only as good as the data it’s fed. If the data is inaccurate or incomplete, AI’s conclusions could be flawed.
- AI makes transparency more complicated. How can taxpayers trust a system they don’t understand? The IRS must be clear about how AI is used and what factors influence its decisions.
So, what exactly does AI and auditing mean for you as a taxpayer?
The key here is accuracy and completeness. Keep detailed records of income, expenses, and deductions. Make sure you’re looking out for potential errors either with software or a reliable Westchester County expert’s help.
We’re here to look things over for you and make sure your tax return is top-notch. And if you’re in the audit spotlight, we’re happy to help be an advocate on your behalf.
The era of AI-powered audits is upon us. It’s a new reality that demands our attention. By understanding how AI works and taking proactive steps to protect your interests, you can increase your chances of a smooth tax experience.
Are you ready to face the AI tax inspector?
calendly.com/l-karam/prospect-schedule
Here to help you stay compliant in this techy age,
Lynn Karam