He roller coaster… He got early warning
He got muddy water… He one Mojo filter
He say “One and one and one is three”
Got to be good looking ’cause he’s so hard to see…
— from ‘Come Together’ by John Lennon/Paul McCartney
The Beatles recorded ‘Come Together’ in 1969, and made reference to riding a roller coaster, early warning, and muddy water.
Sometimes it takes several decades before a popular song accurately describes reality, but that day may have finally arrived.
Governing magazine recently posted an article by columnist Girard Miller, titled “Tax Cheaters, Beware: AI May Be Coming for You”.
We all know AI is coming for us, whether we’re tax cheaters or not. Whether it’s coming as friend or foe, is yet to be determined. But according to Mr. Miller:
Artificial intelligence is already creeping into state and federal tax departments as a powerful tool to strengthen their audit functions. At the federal level, the IRS is focusing its AI efforts foremost on tax returns of wealthy-stealthy capitalist institutions like hedge funds and investment partnerships that play games to under-report income and overstate expenses…
…CPA firms and tax-filing experts are already warning their clients that there’s a new sheriff in town — the AI Auditor…
I’ve never had to use a CPA firm to help me file my income tax return. I’m a journalist. Journalists don’t have to cheat on their taxes — even if we wanted to — because we hardly ever make enough money to owe any taxes. And if we do pay taxes, it’s like, $100. Maybe $200. So we have to depend on other journalists writing for magazines like Governing to warn us about things like this.
But I have friends who actually pay income tax, and this column is for them.
Mr. Miller (who is also a journalist) says the New York state government reported the number of audits up 56 percent from the previous year, despite having fewer auditors.
The agency is apparently issuing hundreds of thousands of AI-generated inquiry letters to taxpayers in its quest for better compliance and more revenue.
The AI auditing apps are being used (so we are told) mainly to target wealthy people who somehow don’t pay any income tax. Or maybe, pay $200. (And they’re not even journalists.)
One of my heroes is Sir Issac Newton, who determined, back in 1687, that certain physical laws govern the universe. His Third Law of Motion states, “For every action, there is an equal and opposite reaction.” He didn’t know, back then, that this same law applies to income taxes. Or, if he did know, he wasn’t talking about it. (I doubt the IRS would have paid any attention if he did talk about it, but you can never be too careful.)
My point being, AI cuts both ways. We’ve gotten the early warning, and now, a roller coaster full of wealthy cheaters and ambitious IRS auditors is headed into muddy water. Because, if the IRS and state governments start using AI to audit our tax returns, they are going to get a reaction.
An equal and opposite reaction.
By next April, millions of wealthy people will be demanding — from their CPAs and tax advisors — AI apps that can write their income tax returns so as to outwit the AI apps used by the IRS.
I suspect these “audit-avoidance” AI apps will be much more powerful than the IRS auditing apps. After all, we’re talking here about really wealthy people who have been successfully avoiding their tax obligations since at least 1687.
I can understand, if the IRS has failed to pay attention to Newton’s Third Law, because it was originally written in Latin.
Actioni contrariam semper & æqualem esse reactionem: sive corporum duorum actiones in se mutuo semper esse æquales & in partes contrarias dirigi.
The IRS has enough trouble reading 1040 forms that are supposedly written in English.
Mr. Miller is also a fan of Sir Issac’s Third Law, but he sees the equal and opposite reaction differently. He worries that thinks ordinary people — journalists and the like, who aren’t necessarily obscenely wealthy? — will be furious when they find out the IRS is using AI to scrutinize their tax returns. He wrote:
This high-tech trend could test Newton’s third law — that for every action there is an equal and opposite reaction — unless the state tax agencies produce effective PR efforts making the case that they are hunting for cheaters and nothing more than that.
That’s probably a better use of AI, when you really think about it. Writing PR for state taxing agencies.