The IRS' robots

  • 4 March 2020
  • NormanL

It's no secret the federal government is looking for all the additional revenue it can get to cover its ever-growing spending programs. One of the newest tools in the taxman's arsenal is using artificial intelligence to squeeze more out of taxpayers:

The Internal Revenue Service is designing machine-built graphs to plot the relationships among participants in business deals, giving auditors a new tool to analyze transactions and detect tax avoidance. The agency is using artificial intelligence to study notes that agency employees take when fielding questions from taxpayers and testing which combinations of formal notices and contacts are most likely to get a taxpayer who owes money to send a check.

The IRS scours data from inside and outside the agency for its compliance initiatives, such as a recent effort to identify thousands of high-income individuals who didn’t file returns. The government is now sending tax collectors to knock on their doors.

“How do you think we found these people?” said IRS Commissioner Charles Rettig at a conference on artificial intelligence and taxes this week at the University of California, Irvine law school. “It wasn’t on filed returns. These are non-filers. There is a heat map that says where there are concentrations of these people. We have sufficient data on these people.”

The IRS criminal investigations unit uses Palantir Technologies, the data-mining firm, to identify potential fraud cases for further inquiry.

“If I get a first name and a cellphone number, you’d be shocked how much information Palantir can provide,” Mr. Rettig said.

There are very serious questions about using computers to generate tax revenue:

Real risks exist if algorithms for audit selection inadvertently discriminate against taxpayers by race or location. And relying on technology can make an already impersonal agency even more so, perhaps confusing taxpayers who may struggle to understand why the government is coming after them and want to deal directly with people at the IRS.

“The tools are only going to be as good as the people employing them,” said Victor Fleischer, a UCI law professor.

Perhaps it's inevitable machines will do more of the rote, repetitive tasks in agencies like the IRS. However, agencies like the IRS already have enormous power that's sometimes abused. What safeguards will be erected to ensure the taxman's robots don't make matters even worse?