The Internal Revenue Service (IRS) has long been an institution that most American taxpayers prefer to avoid. The thought of undergoing an audit induces anxiety, and recent data reflects this sentiment: from 2013 to 2021, the chances of an audit were exceedingly slim, standing at just under 1%. More precisely, by the end of fiscal year 2023, only 0.44% of individual tax returns and 0.74% of corporate returns had been audited. Such low rates are indicative of varying factors such as limited resources that the IRS has experienced for a considerable period.
One key reason for this scarcity of audits has been the IRS’s ongoing struggle with resource consistency, which includes financial investment, personnel, and technological advancements. Although there were efforts to enhance enforcement through the funds allocated by the Inflation Reduction Act, a significant portion of this financial backing has been rescinded by Congress. The process of auditing—essentially an examination where the IRS seeks additional information to validate claims made on tax returns—poses a daunting task for the agency. When taxpayers owe additional amounts, whether through successful audits or not, they are susceptible to receiving collections notices.
Audit rates are notably influenced by a multitude of factors, including a taxpayer’s income level, types of credits claimed, and business ownership. For example, among individuals reporting total incomes exceeding $10 million, the IRS conducted audits on 8.7% of their returns during that same 2013-2021 timeframe. Conversely, among individuals with incomes between $50,000 and $500,000, the audit rate was markedly lower at 0.5% or less in each of those years. Low-income households claiming the Earned Income Tax Credit exhibited higher audit rates, fluctuating between 0.7% for the year 2021 and peaking at 1.5% in 2013.
With the prospect of reduced employee numbers coupled with increased reliance on artificial intelligence (AI), the future of IRS audits appears uncertain. A spokesperson from the Treasury declined to specify potential audit levels as Congress continues to reassess IRS funding and functionality. Treasury Secretary Scott Bessent, while addressing the public on social media, emphasized a commitment to improving efficiencies at the IRS and expressed intentions to use tools like AI to identify high-risk cases, particularly concerning affluent tax evaders.
Currently facing significant upheaval, the IRS has seen rapid staff turnover and has yet to appoint a stable leader following the resignation of Danny Werfel, the previous IRS Commissioner. A blend of layoffs, retirements, and delayed resignations has resulted in thousands of skilled employees—those with deep knowledge of tax administration and history—leaving their positions. The early repercussions of the initial workforce cuts have predominantly impacted IRS enforcement staff involved in audits and collections.
While modernization attempts continue to pace, a shift towards implementing AI raises concerns among experts about the efficacy of audits and the vital principal of protecting taxpayer rights. Accurate revenue collection is crucial for the fiscal health of a government already grappling with unprecedented levels of national debt. Currently, the tax gap—defined as the difference between money owed and money collected—is estimated to be nearly $700 billion annually.
As the agency endeavors to expedite AI deployment, there remains apprehension regarding compromising quality for speed. Werfel notes the repercussions of hasty layoffs and warns that AI cannot yet fully replace human judgment in auditing processes. Current complexities surrounding wealthy individuals and intricate tax scenarios create uncertainty regarding the agency’s capacity to address these cases effectively.
There is no doubt that a significant reliance on automated “correspondence audits,” typically involving detailed inquiries conducted via mail, will remain predominant. These audits most frequently affect simpler tax situations and lower-income filers, but the broader implications of diminished expertise within the IRS raise critical questions about taxpayer service and data accuracy.
With fewer personnel managing audits, individuals may encounter immense difficulties in reaching human representatives to resolve their tax concerns. The struggle for quality customer service is not new; previous tax reports have highlighted inefficient communications between the IRS and taxpayers. Experts like Nina Olson have indicated that inadequate staffing amidst widespread automation would likely increase service frustrations.
Moreover, erroneous assessments generated by AI systems may lead to wrongful outcomes if not verified by skilled personnel. If such models are trained on incorrect historical data, taxpayers could once again find themselves entangled in a mess of disputes where they owe payment that should be contested. Overall, these shifts within the IRS spotlight a pivotal need for further consideration of how new technologies and streamlined operations can better the service while protecting taxpayer rights.