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AI can help the IRS do its job. Are we ready for that?


Any great change brings hopes and fears. The possibilities and threats of artificial intelligence (AI) becoming a regular part of our lives have ramped those hopes and fears up to level gazillion.

On the positive side, tasks that take up an inordinate amount of time for us humans to do can be accomplished much more quickly by AI. That can make everyday life more convenient and enjoyable for many of us.

The downside of that is that some of those tasks are paying jobs for people. Those folks are out of luck (and work) when AI takes over their jobs.

Another pro for AI is that it can be a great benefit beyond already available apps for people with disabilities. But as it learns more about all of us, the AI con is that it poses some serious, and potentially dangerous, privacy risks.

Tax AI options and implications: Privacy is a paramount concern when it comes to taxes. However, many in the tax community believe AI can be used in a positive way here.

The audit, advisory, and tax firm KPMG is rolling out generative AI to tax pros, according to a recent Bloomberg Tax report.

"This is probably the most transformative moment for technology in a generation," Brad Brown, global chief technology officer for KPMG’s tax business, said in an interview with Bloomberg Tax. "

KPMG's entire tax practice now has access to ChatGPT, and the firm is working to add it to products on which its clients also rely. "In essence, our professionals have got a new team member," said Brown.

'Transforming' U.S. taxes: A former U.S. Treasury official also thinks AI can be a productive new team member for the Internal Revenue Service, particularly when it comes to collections.

AI holds the promise of transformative (that word again) change for the United States' sprawling and antiquated tax system, wrote Thomas J. Healey in a recent New Jersey Star-Ledger newspaper guest column.

"The potential benefits to the nation's tax agency have never been more apparent," said Healey, an assistant secretary of the U.S. Treasury under President Ronald Reagan and a senior fellow at Harvard University’s Kennedy School of Government.

He noted that each taxpayer filing error creates an extra step for IRS personnel, resulting in enormous backlogs when compounded millions of times over.

But an AI algorithm could be trained on the IRS' massive data sets to pick up on the most commonly made mistakes, then proactively reach out to taxpayers with information and instructions on how to correctly fill out the most error-prone IRS forms, according to Healey.

"That's just the tip of the AI iceberg," adds Healey. "By automating routine tasks, identifying patterns of non-compliance and fraud, and providing better customer service, the IRS might finally be able to propel itself into the 21st century."

AI as IRS' newest collection agent: AI also could bring in revenue that's been slipping through Uncle Sam's hands.

Investigating complex tax evasion cases, such as those involving money laundering and identity theft, cases can be extremely time-consuming and vulnerable to errors. That's part of the reason the audit rate of individual income tax returns fell from 0.90 percent in 2010 to 0.25 percent in 2019, wrote Healy. (That 0.25 percent audit rate also is this weekend's By the Numbers figure.)

Healey argues that AI could help the IRS cut losses not only in more elaborate schemes, but also with normal but not nefarious taxpayer noncompliance.

"In terms of customer service, automation could also portend desperately needed change," writes Healey. "An AI-powered phone response system built on natural language processing could allow the IRS to respond to the most common taxpayer inquiries, freeing agents to resolve more complex issues."

The IRS already is using bots for some of its taxpayer phone interactions. The agency also has acknowledged that it's exploring how new technology, including AI, can help its agents do their jobs better and more efficiently.

Intrigued, but not convinced: Count me among those who are still a bit leery of our new robot tax overlords.

A recent Fortune story about an apparent drop in ChatGPT's accuracy in completing previously answered math problems is disconcerting. Math, after all, is a big part of taxes. Plus, there are the instances where generative AI refuses to answer questions.

I know, I know. Every new piece of technology has to work out bugs. That's why I'm a late adopter, leaving those more eager for the latest thing to deal with the inevitable glitches first.

Still, I admit there's the possibility for positive AI involvement in taxes. Eventually.

After all, the tax agency — and we taxpayers — need all the help we can get.

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