What are your chances of being audited now that the IRS is using AI? Jury is still out
The Internal Revenue Service (IRS) has been undergoing significant changes, particularly in its approach to audits and compliance. With the introduction of artificial intelligence (AI) into its operations, many taxpayers are left wondering how this technology will affect their chances of being audited. While the potential for AI to enhance the efficiency of audits exists, the actual impact on audit rates remains uncertain.
Current Audit Rates
Historically, the likelihood of being audited by the IRS has been relatively low. In recent tax years, less than 1% of filers have faced an audit. For instance, in the 2021 tax year, only 0.3% of all tax returns were audited. The audit rates tend to vary based on specific characteristics of taxpayers, such as income levels and the types of deductions claimed. However, even within these groups, the audit rates generally remain below 10%, often falling below 1%.
Changes Within the IRS
Recent developments have significantly impacted the IRS’s workforce and operational capabilities. A considerable number of experienced employees have left the agency, either through layoffs or resignations. According to a report from the Treasury Inspector General for Tax Administration published in July 2025, over a quarter of tax examiners and revenue agents were part of this workforce reduction.
Moreover, funding for IRS enforcement, which was promised under the 2022 Inflation Reduction Act, has faced rescission, and there are ongoing discussions about further cuts to the agency’s budget. Despite these challenges, the IRS is actively modernizing its systems and increasing its reliance on AI to enhance its enforcement capabilities.
The Role of AI in IRS Audits
AI is being utilized by the IRS to identify high-risk areas of non-compliance and potential fraud with greater accuracy. Frank Bisignano, the IRS CEO, stated in his testimony before the Senate Finance Committee that the agency aims to advance a strong compliance agenda while improving collections beyond historical norms.
Benefits of AI in Auditing
When used responsibly, AI has the potential to improve the audit process significantly. Some of the anticipated benefits include:
- Targeted Audits: AI can help the IRS focus on taxpayers whose returns show signs of non-compliance, thereby reducing the number of audits that yield no findings.
- Efficiency: AI can analyze vast amounts of data quickly, identifying patterns and anomalies in tax returns that may indicate underreporting or fraud.
- Forensic Analysis: AI provides a forensic edge to the audit process, allowing the IRS to select returns for audit more effectively.
Concerns Regarding AI Implementation
Despite the advantages, there are significant concerns about the use of AI in audits:
- Human Oversight: It is crucial for the IRS to balance AI use with human review to ensure that the outputs generated by AI are reliable.
- Staff Shortages: The reduction in experienced staff may hinder the IRS’s ability to follow through on audits identified by AI, particularly for complex cases that require in-depth analysis.
Potential Increase in Audit Rates
AI’s introduction could lead to an increase in certain types of audits, particularly correspondence audits. These audits are typically less resource-intensive than field audits and involve the IRS sending a letter to taxpayers indicating discrepancies in their returns. Taxpayers must then respond by either paying the additional amount owed or contesting the assessment.
However, if the IRS increases its reliance on correspondence audits, it must ensure that there are enough trained staff available to handle inquiries from affected taxpayers. This is especially important given the current shortage of experienced personnel within the agency.
Conclusion
The future of IRS audits in the age of AI is still uncertain. While the potential for improved efficiency and targeted audits exists, the effectiveness of AI will largely depend on responsible implementation and the availability of skilled staff to manage the audit process. As the IRS continues to adapt to these changes, taxpayers may find themselves navigating a new landscape of compliance and enforcement.
Note: The information presented in this article is based on the latest available data and insights regarding the IRS’s use of AI in audits. Taxpayers are encouraged to stay informed about changes in tax regulations and compliance practices.
