The IRS’s plan to use AI could impact wealthy taxpayers. Here’s how

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The IRS is launching plans to use increased technology and artificial intelligence to collect unpaid taxes from high earners, partnerships and large corporations – which could transform tax compliance or pose challenges for the agency, experts say.

After earlier criticism of low audit rates among the wealthy, the IRS on Friday renewed plans to focus on broader enforcement, including expanded use of AI to audit large partnerships such as hedge funds, real estate investors, large law firms and more.

The agency also reiterated its promise not to increase exams for Americans making less than $400,000 a year, as well as protections for low- to middle-income earners who qualify Earned Income Tax Credit who have seen increased exam rates.

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“Right now, you file a tax return and play the audit lottery,” said Robert Kovacev, tax litigation partner at law firm Miller & Chevalier. “But with AI, the data is constantly queried by the algorithm.”

Once the newly improved technology is fully implemented, it is more likely to uncover previously overlooked tax issues at the higher end, he said.

You can expect increased scrutiny from the IRS in the next few years.

Robert Kovacev

Tax Litigation Partner at Miller & Chevalier

“You can expect increased scrutiny from the IRS in the next few years,” Kovacev said. The change won’t happen immediately, but within three to five years “there will be a noticeable increase in audits of large partnerships, large corporations and wealthy families,” he said.

It is “more important than ever” to keep tax records

Even if you’re not subject to increased IRS scrutiny, Kovacev says it’s “more important than ever” to stay on top of tax documents, including receipts to support items from previous tax returns.

“Every taxpayer should keep their tax returns for at least seven years,” he said, noting that it can be difficult to “reinvent the wheel” for an audit if you haven’t kept records.

Typically, an IRS audit has a statute of limitations of three years, with extensions in some cases. However, there is no time limit when the agency pursues fraud or non-filers.

There is pressure from the IRS to “show results”

IRS targets top earners with AI and machine learning The IRS’s plan to use AI could impact wealthy taxpayers. Here’s how

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