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IRS announces auditing with ‘equity’, will use AI

Internal Revenue Service Federal Building. (U.S. General Services Administration)
September 10, 2023

In a major policy shift, the Internal Revenue Service (IRS) announced Friday that it will pursue “equity” in its auditing decisions, shifting its focus primarily toward wealthy taxpayers and easing scrutiny on the working poor, while using artificial intelligence.

In Friday’s IRS press release, Commissioner Danny Werfel described the adjustments as “sweeping, historic” changes aimed at tackling tax evasion among the affluent while upholding “a deep respect for taxpayer rights.” The overhaul is part of a broader strategy to bolster government revenue following an $80 billion investment in the IRS by Congress last year, according to The Washington Times.

“The IRS is on the side of taxpayers, and we will be working to protect hard-working people from scammers or fraudsters who try to use the tax system for their schemes, whether it’s promising people inflated EITC amounts or tricking people into tax-related identity theft,” Werfel stated. The agency also announced it will harness artificial intelligence to pinpoint targets for some audits and address tax-related fraud more effectively.

The realignment of the IRS comes on the heels of the Inflation Reduction Act, signed into law by President Joe Biden a year ago, which allocated hundreds of billions of dollars to climate change initiatives, according to The Washington Times.

The $80 billion budgetary boost for the IRS was part of a plan to ramp up audits and increase government revenue. Critics, however, expressed concerns that the funding would result in more invasive financial examinations for American citizens.

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Werfel reaffirmed Friday that the IRS would focus chiefly on auditing wealthy citizens and revealed plans to decrease the high rate of audits on Earned Income Tax Credit (EITC) claims, typically filed by the working poor.

“High levels” of EITC audits have been recorded, even as audit rates for the wealthy declined, according to a recent study. Werfel said more details would be released later this fall on how the agency plans to reduce EITC audits.

In particular, the IRS is zoning in on taxpayers who file as large partnerships, organizations with assets of at least $100 million and a minimum of 100 partners. A recent Government Accountability Office (GAO) report indicated that these entities have been notably under-audited, despite their complex and challenging nature.

Additionally, the IRS is assigning special examiners to scrutinize taxpayers with incomes exceeding $1 million and an acknowledged tax debt of at least $250,000. According to the IRS, around 1,600 taxpayers fit this description, owing hundreds of millions in combined debt.

The announcement has drawn praise from Democratic lawmakers. “For too long, the wealthy and well-connected have played by their own set of rules when it came to paying their taxes, leaving America’s working families to pay the price,” Rep. Richard Neal, a Massachusetts Democrat, said.

In Friday’s press release, the IRS vowed to adhere to President Biden’s promise that taxpayers with incomes below $400,000 would not see an increase in audit rates, although specifics have yet to be released.

This news article was partially created with the assistance of artificial intelligence and edited and fact-checked by a human editor.