With the current wave of artificial intelligence, it’s no surprise that AI is changing how the IRS identifies potential tax noncompliance and selects returns for examination.
In 2026, AI-assisted analysis is increasingly relevant to taxpayers with complex returns, including high-income individuals and business owners. However, AI does not automatically determine whether someone will be audited.
According to a March 2026 report from the U.S. Government Accountability Office (GAO), the IRS reported 126 active AI use cases in its June 2025 inventory, including applications involving audit selection, tax compliance, and fraud detection. Many of these initiatives were still in development at that time.
Understanding how the IRS uses AI, and what it means for your tax exposure, can help you prepare for potential audit selection.
How Is the IRS Using AI to Select Tax Returns for Audits?
The IRS uses data analytics and artificial intelligence to help identify returns that may warrant further examination.
These technologies can assist the agency in evaluating tax information, identifying patterns of potential noncompliance, and prioritizing certain cases for review.
It’s important to note, however, that AI-assisted audit selection does not mean that every flagged return contains an error or that every flagged taxpayer will be audited.
Source: GAO, Artificial Intelligence: IRS Actions Needed to Address Skills Gaps, Information Quality, and Strategic Management (March 2026).
Are High-Income Individuals More Likely to Face AI Assisted IRS Scrutiny?
High-income taxpayers often have more complicated returns involving investments, multiple income sources, partnerships, trusts, or significant deductions.
These complex financial components can create additional tax reporting and documentation requirements.
There is no publicly established rule that a taxpayer becomes more likely to be audited simply because they have high income, however more complex reporting obligations can often result in a higher likelihood of errors and other common audit triggers, such as unreported income, blurred business expenses, and foreign account reporting omissions. According to IRS data, the IRS only audited 0.36% of all individual tax returns filed for the 2015 through 2023 tax years. However, during that same period, the audit rate jumps to 7.9% for returns reporting total income of $10 million or more.
AI-assisted analysis may help the IRS more efficiently identify discrepancies or potential compliance issues within complex financial information. For individuals with substantial assets or complex tax situations, maintaining accurate records and ensuring consistency across tax filings remains essential.
How Could AI Affect IRS Audits for Business Owners?
Business owners may face additional tax compliance considerations involving business income, deductions, payroll taxes, and transactions across multiple entities.
IRS data analysis can help identify reporting inconsistencies or patterns that warrant closer examination.
For example, potential areas of scrutiny may include:
- Discrepancies between reported income and third-party tax documents. • Business deductions that lack adequate substantiation.
- Payroll tax reporting inconsistencies.
- Transactions between related businesses/entities.
- Complex partnership and pass-through income reporting.
Note: these are established areas of tax compliance concern, not a confirmed list of proprietary IRS AI audit-selection criteria.
For business owners, accurate bookkeeping, consistent reporting, and documentation of significant transactions are important safeguards against potential audit complications.
How Can Taxpayers Prepare for AI-Assisted IRS Audits?
Regardless of how the IRS selects returns for examination, the fundamentals of audit preparation remain the same.
- Maintain thorough financial records. Retain documentation supporting income, deductions, business expenses, and significant transactions.
- Review reporting consistency. Ensure tax returns accurately reflect information reported by employers, financial institutions, partnerships, and other third parties.
- Address complex tax issues proactively. Significant transactions, complicated ownership structures, and unusual deductions may warrant additional professional review.
- Respond carefully to IRS notices. An IRS inquiry does not necessarily mean wrongdoing, but deadlines and documentation requests should be taken seriously.
- Seek legal guidance when appropriate. Taxpayers facing substantial proposed adjustments, complex examinations, or potential penalties may benefit from representation by an experienced tax attorney or tax attorney-CPA.
Frequently Asked Questions
About AI and IRS Audits Is the IRS using AI to audit taxpayers in 2026?
Yes. The IRS has documented AI applications supporting tax compliance and audit selection. However, AI is one component of its broader examination processes.
Can AI detect unreported income?
AI-assisted analysis may help identify potential reporting discrepancies. The IRS also uses established information-matching systems to compare tax returns with information submitted by third parties.
Does AI increase the risk of an IRS audit?
AI may improve the IRS’s ability to identify potential compliance issues, but available public evidence does not establish that AI adoption alone has increased every taxpayer’s likelihood of an audit.
What should I do if the IRS selects my return for an audit?
Review the notice carefully, preserve relevant records, and respond within the applicable deadlines. For complex or high-value tax matters, consulting a tax attorney before submitting substantive responses can make a significant difference in the outcome of your audit.
Facing an IRS Audit? Rosefelt Tax Law Can Help.
As the IRS continues developing its use of artificial intelligence and advanced analytics, taxpayers with substantial income, business interests, and complex financial arrangements should remain attentive to their tax reporting obligations.
Rosefelt Tax Law represents individuals and businesses facing complex federal tax matters, including IRS audits, tax disputes, and tax resolution issues.
If you have received an IRS audit notice or have concerns about potential tax exposure, our team can help evaluate your circumstances, explain your rights, and develop a legal strategy tailored to achieve the best results for your specific situation.
Contact Rosefelt Tax Law at (866) 995-0061 today to discuss your tax situation.
Sources
- U.S. Government Accountability Office. Artificial Intelligence: IRS Actions Needed to Address Skills Gaps, Information Quality, and Strategic Management. March 24, 2026. GAO-26-107522.
- U.S. Government Accountability Office. Inside the IRS’s Use of Artificial Intelligence. March 25, 2026. Read the GAO article.
Disclaimer: This article provides general information and does not constitute legal or tax advice. IRS policies and procedures may change. Consult a qualified tax attorney regarding your specific circumstances.
