IRS Plans to Utilize AI: Potential Impact on Wealthy Taxpayers
The IRS is set to launch plans incorporating advanced technology and artificial intelligence (AI) to target unpaid taxes from higher earners, partnerships, and large corporations. This move has the potential to revolutionize tax compliance but may also pose challenges for the agency, according to experts. Addressing past criticisms of low audit rates among the wealthy, the IRS has renewed its focus on higher-end enforcement, including the expanded use of AI to scrutinize large partnerships like hedge funds, real estate investors, and law firms.
Enhanced Technology and Increased Scrutiny
Once fully implemented, the enhanced technology is expected to improve the IRS's ability to identify previously overlooked higher-end tax issues. Taxpayers falling into these categories can anticipate heightened scrutiny from the IRS in the coming years. While the immediate change may not be evident, within three to five years, audits of large partnerships, businesses, and high-net-worth families are likely to noticeably increase.
Importance of Organized Tax Records
Even for individuals who may not be subject to increased IRS scrutiny, it is now more crucial than ever to maintain organized tax records. This includes retaining receipts to support positions taken on past tax returns. Robert Kovacev, tax controversy partner at law firm Miller & Chevalier, emphasizes the importance of preserving tax returns for a minimum of seven years. Failing to maintain proper documentation can make it challenging to navigate an audit successfully.
Risks and Challenges for the IRS
While the utilization of AI technology may aid compliance efforts, it also presents risks for the IRS. Mark Everson, a former IRS commissioner and current vice chairman at Alliantgroup, highlights the pressure on the administration to demonstrate results, particularly with the 2024 presidential election approaching and ongoing scrutiny of IRS funding. The IRS must strive for success while avoiding significant mistakes. Additionally, despite increased funding, staffing for enforcement remains a challenge, which is crucial for effective compliance. Improper actions by the IRS may face resistance, especially from higher-end taxpayers who feel unfairly targeted.
In conclusion, the IRS's plan to employ AI technology for tax enforcement signifies a significant shift in tax compliance practices. Wealthy taxpayers, partnerships, and large corporations can expect increased scrutiny in the coming years. It is imperative for all taxpayers to maintain meticulous tax records to support their positions. While the plan holds promise for improved compliance, the IRS must navigate risks and challenges to ensure effectiveness and fairness in its enforcement efforts.
Conclusion: Implications for New Businesses
The IRS's plan to use AI technology to target unpaid taxes from high earners and large corporations has significant implications for new businesses.
Increased Scrutiny and Compliance
New businesses, particularly those in high-income brackets, can expect increased scrutiny from the IRS. This necessitates a proactive approach to tax compliance and record-keeping to navigate potential audits successfully.
Adapting to Technological Advances
The IRS's use of AI technology underscores the increasing role of technology in regulatory enforcement. New businesses must stay abreast of these advances and adapt their practices accordingly.
Navigating Potential Challenges
While the IRS faces its own challenges in implementing this plan, new businesses must also be prepared to navigate potential issues, such as disputes over perceived unfair targeting.
In conclusion, the IRS's plan to use AI in tax enforcement presents both opportunities and challenges for new businesses. These businesses must ensure rigorous tax compliance, adapt to technological advances, and be prepared to navigate potential disputes. This proactive approach will be key to their success in the evolving landscape of tax enforcement.