IRS commissioner indicates AI will play growing role in future tax collection

You can’t spell Internal Revenue Service without AI, and its commissioner, Danny Werfel, offered a vision this week for how the tax collecting agency intends to use artificial intelligence in the not-too-distant future.

Werfel, in remarks made April 17 at UiPath on Tour: Public Sector Event in Washington, D.C., outlined two kinds AI uses the IRS is exploring: virtual chatbots that assist and benefit tax-paying citizens and AI tools IRS agents can use to identify potential tax cheats.

“Right now, I believe that there are AI solutions that we have not yet leveraged that exist today that can help with some of these basic questions to the benefit of taxpayers,” Werfel said. “And on the other side of the equation, we are using AI today to do even more to unlock and spot this complexity.”

Werfel likened advanced AI tools to “night vision goggles” the IRS needs to “unlock and see and spot the issues” in potential cases involving the “most complicated, largest taxpayers” in the country.

“I also think of a chess analogy to where we are going to be assessing some of the complexity of how money is moved across different subsidiaries, into tax shelters and holding companies,” Werfel said. “Sometimes [how money is moved] is done completely legally, and sometimes, unfortunately, it’s done illegally. A human makes the decision, ultimately, when we do these types of efforts on the enforcement side, but we want the computer essentially helping us be a better chess player.”

Werfel’s remarks came two days after a hiccup-free tax filing season that concluded on April 15 – Tax Day – which saw record-setting web traffic and customer service response times. He credited billions of dollars in additional funding through the Inflation Reduction Act the agency has used to “basically rebuild” its core tech systems that had languished under paltry budgets over the previous decade.

Using IRA funds, Werfel said the IRS began experimenting with AI, building “chatbots and other solutions” to meet taxpayers in an increasingly virtual world. While he vowed the IRS will continue offering in-person and phone assistance to people who want it, a growing number of people want to engage with the IRS virtually, as they do in banking and commerce.

“We're going to need an AI-powered solution to help taxpayers get the answer that they need,” Werfel said. “But we’re really just getting started.”

Congress has taken note of the IRS’ AI efforts of late, with House lawmakers introducing the No AI Audits Act on March 20 to limit the agency’s use of the technology. With Congress at loggerheads over nearly every piece of legislation, it’s unclear whether lawmakers could muster enough support to actually restrict the IRS’ use of the emerging technology. 

Down the line, Werfel said AI might help the IRS address more complex problems, like identifying areas where tax schemes attempt to take advantage of disadvantaged Americans. Werfel said that the IRS would consider privacy and security issues before employing any new AI solution, largely to avoid the kind of issues it experienced last year when a report concluded Black taxpayers were three to five times as likely to be audited as other taxpayers. The culprit? Researchers concluded the cause of the disparity was computer algorithms the IRS employed to check for fraud on certain returns claiming the Earned Income Tax Credit. 

“We have to be cautious and thoughtful with how we deploy AI,” Werfel said. “We have a fundamental responsibility that is primary for us, and that is to protect taxpayer rights. And those rights include things like the right to privacy and the right that we will not add unnecessary intrusion into that privacy.  We need to stay 1,000 miles away from even the perception that AI is in any way violating the responsibility we have to protect taxpayer privacy.”