Watchdog Warns of IRS’s Lack of Transparency with New AI ‘Spy’ Software, Sparking Republican Outrage
In a recent report, the Government Accountability Office (GAO) has sounded the alarm about the IRS’s lack of transparency concerning its new artificial intelligence (AI) software used to screen tax returns for potential fraud. The watchdog’s findings have ignited a firestorm of criticism, especially from House Republicans who claim the technology invades Americans’ privacy and functions as a surveillance tool.
The GAO report highlights significant concerns over how the IRS employs AI to detect underreported taxes, pointing out that the agency fails to provide sufficient information on the technology’s operations. The report states, “IRS has not completed its documentation of several elements of its AI. Completing documentation would help IRS retain organizational knowledge, ensure the models are implemented consistently, and make the process more transparent to future users.”
The federal tax agency acknowledges these warnings and has pledged to be more transparent in the future. However, the implications of these AI systems are deeply troubling, considering their impact on the nearly $700 billion in unpaid taxes the IRS aims to recover each year. This software, intended to enhance the accuracy and efficiency of audits, has drawn fierce criticism from Republicans who argue it constitutes an overreach and potential violation of privacy.
The IRS began using AI to randomly select tax returns for audits, scanning for indicators of avoidance and underreporting. This approach is similar to AI systems utilized by insurance and financial firms to detect fraud. Despite its potential effectiveness, the GAO report casts doubt on the transparency and consistency of the IRS’s AI application, emphasizing the need for detailed documentation of key components and technical specifications.
From 2014 to 2016, data shows that taxpayers voluntarily paid 85 percent of their owed taxes on time, leaving a 15 percent gap, equating to nearly $500 billion in unpaid taxes. This gap, largely due to underreporting, has grown annually with the economy, reaching $688 billion in 2021. To address this, the IRS has piloted AI systems designed to identify noncompliance more effectively than traditional manual methods.
The GAO report highlights that AI raised the estimated tax gap in individual returns from $145 billion to $278 billion. Despite the apparent success, the lack of transparency about how these systems operate remains a significant issue. The GAO made six recommendations to enhance the system’s effectiveness and transparency, all of which IRS chief operating officer Melanie Krause has agreed to consider. Krause acknowledged the need for better documentation, stating, “There is always room for improving existing technical documentation to make it more accessible.”
Nevertheless, House Republicans are deeply skeptical and concerned about these new AI systems. They question whether the IRS and the Department of Justice are using AI to spy on Americans. Wyoming Representative Harriet Hageman voiced her concerns on Twitter, accusing the tax agency of “using AI technology to spy on the bank accounts of taxpayers.”
While some, including former IRS commissioner Eric Hylton, recognize the potential benefits of machine learning in tax collection, there are reservations. Hylton, now a national director of compliance at Alliantgroup, expressed support for the technology but acknowledged its limitations. “Obviously, you need human presence, knowledge, and skills, but there’s a lot of ways artificial intelligence could be helpful,” Hylton told Accounting Today. He added, “Hallucinations are going to be there. There is no perfect system. There are a lot of technological leaps needed.”
The controversy surrounding the IRS’s use of AI reflects broader concerns about government overreach and privacy. As Governor Newsom faces a substantial budget deficit, decisions like these will shape public perception and political discourse. The GOP’s scrutiny of AI surveillance underscores the importance of transparency and accountability in government operations, especially when it involves advanced technology capable of monitoring citizens’ financial activities.
In conclusion, the IRS’s new AI software, designed to enhance tax collection, has sparked a heated debate about privacy, transparency, and government surveillance. With House Republicans leading the charge, the call for greater accountability and clearer documentation is loud and clear, ensuring that taxpayer rights and privacy are protected in the age of artificial intelligence.
