Danny Werfel, commissioner of the Internal Revenue Service, speaking to the Senate Finance Committee in April 2023. Photographer: Al Drago/Bloomberg via Getty Images
The latest artificial intelligence area of use: tax collection among the nation's wealthiest.
Why it matters: The Internal Revenue Service (IRS) said it will start using AI and other tools to detect tax violations by high-income earners and large business partnerships
- The IRS said Friday it leveraged AI to open investigations into 75 of the largest partnerships in the U.S. that each have more than $10 billion in assets on average.
- Machine learning tech helped identify the targets, which include hedge funds, real estate investment partnerships and law firms, while seeking threats to the tax system in a segment that's historically seen limited scrutiny, the service said.
Driving the news: The IRS is prioritizing cases involving taxpayers with incomes above $1 million but tax debts of more than $250,000.
- It said around 1,600 taxpayers fall under this category and "owe hundreds of millions of dollars in taxes."
What they're saying: Danny Werfel, IRS commissioner, said in a statement the new effort to hold some of the the wealthiest filers accountable was made possible through Inflation Reduction Act funding.
- Werfel said the pre-IRA years of underfunding "led to the lowest audit rate of wealthy filers in our history."
- "I am committed to reversing this trend, making sure that new funding will mean more effective compliance efforts on the wealthy," he added.
- He said there will be "no change" in audit rates among middle- and low-income filers for "years to come."
The big picture: The announcement is part of the Biden administration's effort to increase revenue by billions of dollars over the next decade through new tax compliance measures.
- The effort, and additional funding for the IRS, has been heavily criticized by Republicans, who claim it will use the extra resources to harass small business and average taxpayers.
- Earlier this year, Republicans clawed back $20 billion from the IRS over the next two years in exchange for increasing the nation's borrowing limit and avoiding a default.
- Treasury Secretary Janet Yellen directed the IRS to avoid using any new funding to increase audits on small business or households earning $400,000 per year or less.
Go deeper: How a proposed IRS tool could disrupt the billion-dollar tax prep industry