Cross-Office Team Pens Law360 Expert Analysis on IRS’ Plan to Use AI in Tax Code Enforcement

Akron, Ohio (October 12, 2023) - Akron Managing Partner and Tax Practice Chair David Kern, with Fort Lauderdale Partner and Government Investigations & White Collar Defense Practice Co-Chair Sean Shecter and Associate Monica Uppal-Gupta, recently authored an Expert Analysis article for Law360 tiled, “While Risks Exist, AI Could Transform IRS Enforcement.” The article discusses the Internal Revenue Service’s (IRS) new plans for enforcing the tax code, which include using artificial intelligence (AI) to detect violations.

The authors open the article by explaining that on September 8, the IRS announced its “sweeping new effort to crack down on abuses of the tax code.” As part of this broad effort, the IRS will, among other things, use AI to detect tax evasion, to identify emerging compliance threats, and to improve case selection tools to avoid unnecessary audits. The authors further describe that the Inflation Reduction Act will fund the IRS’ efforts, and that moving forward, the IRS plans to focus on high-income earners, partnerships, and large corporations.

Next, the authors discuss how AI may help the IRS in its efforts by, for example, identifying patterns that may indicate tax evasion and detecting anomalies in individual tax returns. They go on to identify several benefits and drawbacks of using AI to enforce the tax code. Specifically, they note that on one hand, AI may (1) increase tax revenue by helping the IRS identify more cases of tax evasion, (2) reduce the burden on compliant taxpayers by allowing the IRS to focus more on cases of tax evasion as opposed to audits, and (3) lead to more accurate, timely, and impartial tax assessments. Conversely, the authors point out that the IRS’ use of AI could lead to negative outcomes, such as (1) creating bad data and thus wrongly accusing taxpayers of tax evasion, (2) targeting taxpayers unfairly based on race, ethnicity, or political affiliation, and (3) raising privacy concerns due to AI’s ability to collect a large amount of data about taxpayers.

The authors close the article by observing, “Though the IRS' use of AI is still in its early stages, it has the potential to revolutionize the way that the agency enforces the tax laws. AI can help the IRS to identify and investigate cases that would be difficult or impossible to find using traditional methods, and will assist the IRS in improving its enforcement efforts.”

Mr. Kern serves as chair of Lewis Brisbois’ Tax Practice and as a member of the Corporate Practice. He works with clients to develop and execute business savvy legal and tax strategies for businesses from early stage through maturity and sale or merger, with a view toward maximizing benefit to their owners and investors. Mr. Kern often acts as primary outside counsel to middle market companies owned by private individuals, investment and private equity firms, and public companies.

Mr. Shecter serves as co-chair of Lewis Brisbois’ Government Investigations & White Collar Defense Practice, and chair of its Supply Chain Due Diligence Practice. A former federal prosecutor, he is also a member of the firm's Complex Business & Commercial Litigation, Sustainability and Environmental, Social, and Governance (ESG) Practices.

Ms. Uppal-Gupta is a member of Lewis Brisbois’ General Liability and Government Investigations & White-Collar Defense Practices. Prior to joining private practice, she worked as a felony prosecutor for the State of Florida in Miami’s Eleventh Judicial Circuit.

Read the full Law360 article here (subscription may be required).