As the IRS adopts fast-moving artificial intelligence technology in full force, the face of public tax audits will undoubtedly change significantly. Alongside an agency that has long been sharpening its teeth to ensure taxpayer compliance and fight tax evasion, AI has taken a front-running position in transforming the audit process. This article will explain how the IRS currently deploys AI into its processes, what it means for taxpayers, and how Docyt can help keep you ahead.
How is the IRS Using AI?
The IRS has increasingly sought ways of incorporating AI during the audit process to enhance its procedures. One way was through the Inflation Reduction Act, which provided funding to the IRS to zero in on and expose patterns and anomalies among taxpayers’ returns and identify acts of non-compliance. This has ultimately provided the resources for the IRS to target high-risk taxpayers and turn an eagle eye onto high-income earners, large partnerships, and corporations, increasing their efficiency and productivity while decreasing time and labor costs.
How Does the IRS Using AI Benefit the Agency?
Identify Patterns of Tax Evasion: AI tools can help identify unusual patterns within a tax return that tend to equate to tax evasion. For example, the IRS is targeting large partnerships by keeping an eagle eye on and combing through their balance sheets to spot discrepancies and unreported income among high-net-worth individuals (Treasury.gov)
Automated Audits: AI helps the IRS sort through an enormous amount of data accurately and quickly to ensure enough attention is given to the returns that need closer examination. This elevates the chances of catching out-of-compliance tax returns and reduces audit burdens on compliant taxpayers (Kiplinger.com)
Pros and Cons of an IRS AI Audit
Pros
Efficiency: AI has increasingly made the IRS’s audit process more efficient, allowing the agency to focus on more cases with complex tax situations.
Accuracy: AI can negate human errors, greatly improving audit accuracy and thereby creating a highly effective process of detecting tax evasion.
Resource Optimization: AI supports the IRS by allowing it to allocate resources more effectively, focus more on high-risk areas, and conduct fewer audits for compliant taxpayers.
Cons
Bias and Fairness: Potential bias in AI algorithms is always a concern. History is rich with examples, and such cases have involved a significantly higher percentage of particular demographic groups. This is the very reason the IRS needs to pay close attention to transparency and fairness in AI applications. (Kiplinger.com)
Privacy Concerns: With the increased use of artificial intelligence in surveillance and data analysis, taxpayers are becoming more concerned about the security and privacy of their sensitive financial information.
How Docyt AI Can Help
An IRS AI audit raises concerns for most accountants, making navigating the complexities of tax compliance all the more challenging. AI-powered bookkeeping software by Docyt AI helps businesses stay compliant and always be audit-ready in the event of potential audits.
Automated Compliance
Docyt’s AI-powered bookkeeping platform takes a 360-degree approach to automation and, as a result, ensures that all of your client’s records are accurate and always current. Ultimately, this lowers the risk of errors often responsible for triggering an audit.
Real-time Insights
Docyt AI offers real-time financial reporting capabilities, allowing you to quickly identify and act on discrepancies to maintain clean and compliant records.
Advanced Security
Docyt AI’s advanced security features protect financial data from unauthorized access. As a SOC 2-certified SaaS organization, you and your clients can rest easy knowing that all sensitive information is safeguarded.
The IRS is using AI to dominate the world of tax compliance is the beginning of a new era and will most certainly become part of their everyday part of audit processes in the future. So, with a clear understanding of the implications that come with the IRS deploying AI and having an advanced tool like Docyt AI in your arsenal, accounting firms and CPAs can confidently navigate the ever-evolving terrain of AI and maintain unwavering confidence that their clients will always be standing on the right side of compliance.
