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Watchdog sounds alarm about new AI 'spy' software IRS uses to probe YOUR tax returns
A watchdog has warned of a lack of transparency in the new artificial intelligence software the IRS uses to screen for tax dodgers.
The Government Accountability Office (GAO) says tax chiefs don't reveal enough about how AI sniffs out people who underreport their taxes.
Its report casts doubt on a system that works to uncover nearly $700 billion in unpaid taxes each year.
It comes as House Republicans accuse the software of invasions of privacy and even spying on Americans.
'IRS has not completed its documentation of several elements of its AI,' says the GAO report.
The IRS has started using AI to help uncover nearly $700 billion in unpaid taxes each year
Wyoming Republican Harriet Hageman says the IRS may be 'using AI technology to spy on the bank accounts of taxpayers'
'Completing documentation would help IRS retain organizational knowledge, ensure the models are implemented consistently, and make the process more transparent to future users.'
The IRS has acknowledged the watchdog's warning and says it will be more open in the future.
The federal government's tax-collection agency recently started using AI to randomly select tax returns for audits.
It scans for tell-tale signs of avoidance and underreporting.
It's similar to the AI systems used by insurance and money transfer firms to detect fraud.
The GAO examined IRS data from 2014-2016.
In those years, taxpayers voluntarily paid 85 percent of taxes they owed on time.
That left a 15 percent hole of unpaid taxes — nearly $500 billion — known as the 'tax gap.'
It is mostly due to people underreporting the taxes they owe.
The tax gap grows each year in line with the overall economy, and in 2021 reached $688 billion.
The IRS has started piloting AI to scour tax returns for such 'noncompliance,' says the report.
AI is better at flagging tax dodgers for audits than the old-fashioned manual approach, says the report.
It raised the estimated tax gap in individuals' returns from $145 billion to $278 billion.
IRS boss Melanie Krause says the agency will follow the watchdog's recommendations
Though the AI appears to be effective, the IRS has not revealed enough information about how it works, says the 62-page report.
It's missing details about 'key components and technical specifications,' it adds.
The GAO made six recommendations to make the system more effective and transparent.
IRS chief operating officer Melanie Krause has agreed to take the changes on board.
'There is always room for improving existing technical documentation to make it more accessible,' Krause is reported as saying.
Still, House Republicans have raised concerns about the new systems.
They are probing whether the IRS and the Department of Justice use AI to spy on Americans.
Wyoming Representative Harriet Hageman raised concerns about the tax agency 'using AI technology to spy on the bank accounts of taxpayers' on X/Twitter.
Others, including former IRS commissioner Eric Hylton, say machine learning is an important development in tax collection.
Hylton, a national director of compliance at the tax consulting firm Alliantgroup, says he's a 'big fan' of the new systems, but acknowledges there are shortcomings.
'Obviously you need human presence, knowledge and skills, but there's a lot of ways artificial intelligence could be helpful,' Hylton told Accounting Today.
'Hallucinations are going to be there. There is no perfect system. There are a lot of technological leaps needed.'