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Might AI someday be used in IRS tax evasion investigations?

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There are many methods out there for trying to reduce tax liability. Some of these methods are perfectly legal. Others constitute illegal tax evasion.

When a person is accused of having committed actions that fall into the latter category, such as using an illegal tax shelter, they can face many things, including IRS investigations, possible sanctions and criminal charges. Thus, when a Missouri taxpayer has been accused of having engaged in tax evasion or is being investigated for possible tax evasion, having a skilled tax attorney’s guidance can be vital.

There are a wide range of methods the Internal Revenue Service uses to try to detect tax evasion. Might the use of artificial intelligence to search for illegal tax shelters one day be among these methods?

Computer scientists have been working on developing such an artificial intelligence program. For example, a recent study done by researchers from the Massachusetts Institute of Technology and the Mitre Corporation looked into developing computer algorithms based off of portions of the tax code, with the hope being that such algorithms could be used to help search for potential questionable corporate/partnership tax shelters.

In the study, researchers came up with an algorithm for helping spot potential instances of a type of questionable partnership tax shelter called “installment-sale bogus optional basis.”

Reportedly, the IRS has thus far made no comment on the study.

Do you think that, someday in the future, AI-based tax evasion investigation methods like those the study looked at will be used by the IRS as an investigative tool? How big of a risk do you think such AI-based programs would have of yielding “false positives” that could unnecessarily expose individuals, partnerships or corporations to additional IRS scrutiny? What impacts do you think AI-based tax evasion investigation methods would have on taxpayers overall?

Source: The New York Times, “Computer Scientists Wield Artificial Intelligence to Battle Tax Evasion,” Lynnley Browning, Oct. 9, 2015

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