When people say “the IRS uses AI to catch tax cheats,” they usually mean something more specific. The IRS uses artificial intelligence, machine learning, and advanced analytics to sift large volumes of tax and financial data, rank returns by compliance risk, and route the highest compliance risk issues to the right civil or criminal tax enforcement lane. The IRS does not publish the precise rules, model weights, or thresholds it uses to score every return, and it will not tell you how or why it selected your return. You should assume that the IRS can test your return via computer programming against exponentially more data points than a human reviewer could process manually.
The IRS has made this strategy explicit in its modernization and enforcement planning. It has stated that it uses AI and advanced analytics to help select complex partnerships for audits and that it plans to expand “advanced compliance analytics” to select compliance cases based on the highest risk of noncompliance, with emphasis on high-income individuals, large corporations, and complex partnerships. In parallel, the IRS has deployed machine-learning tools to protect the refund system. IRS Publication 5370 describes the Return Review Program (RRP) as the primary system for pre-refund anomaly and fraud detection for individual returns claiming refunds and states that RRP uses machine learning technologies to detect, resolve, and prevent criminal and civil tax refund fraud and noncompliance.
Where IRS “AI” Actually Shows Up in Real Life
In practice, the IRS uses analytics differently depending on what it tries to stop.
First, the IRS uses data-driven screening to protect the refund pipeline from identity theft and other refund schemes. The Taxpayer Advocate Service has described RRP as a core system for detecting refund fraud, and the IRS has described RRP’s machine-learning role directly in Publication 5370. If a model flags a return as high-risk before the IRS releases a refund, the IRS can hold the refund, demand verification, and route the case into additional review. That process can feel “automatic” from the taxpayer’s perspective, but the IRS designs it to stop money from leaving the Treasury before it can confirm legitimacy.
Second, the IRS uses advanced analytics to select and focus audits in complex segments where the agency historically struggled to deploy resources efficiently. The IRS has stated that it uses data analytics to identify large corporate taxpayers for audit through its Large Corporate Compliance program, and that it uses AI and advanced analytics to select complex partnerships for audit initiatives. You should read that as a practical warning: even if you do everything “by the book,” the IRS can still open an exam when your return presents issues that its computerized AI models associate with underreporting, abusive structuring, or recurring civil or criminal tax compliance gaps.
Third, the IRS continues to build the technical infrastructure that supports these models. For example, an IRS Privacy Impact Assessment describes its Advanced Analytics Platform as a secure environment with data science tools for designing and developing AI and machine-learning models and deploying them using machine-learning operations best practices. The Treasury Inspector General for Tax Administration (TIGTA) has also evaluated the IRS’s current and planned AI use and has pushed the agency to accelerate governance to develop and use AI in a safe, secure, and trustworthy way.
What the Models Tend to Look For, and Why That Can Escalate into a High-Risk Tax Audit
AI does not “prove” fraud, and it does not automatically turn your audit into a criminal tax investigation. It does, however, help the IRS identify patterns that frequently correlate with intentional & thus potentially criminal noncompliance. Those patterns can trigger deeper civil scrutiny, and in the wrong fact pattern, they can create the conditions for a civil exam to become a high-risk tax audit, including an eggshell audit or reverse eggshell audit, where the way you communicate matters as much as the documents you produce. AI results can also be picked up directly by the criminal investigation unit of the IRS who’s sole purpose is to prosecute tax fraud for the deterrent effect.
In plain terms, IRS analytics often focus on mismatches, anomalies, and patterns that do not “fit” what the IRS expects for a taxpayer with your income level, industry, geography, and filing history. You will see these themes repeatedly in both refund-fraud detection and complex case selection:
Mismatch Signals
The IRS compares what you report against information returns and third-party data streams. When the IRS sees gaps, it tends to ask, “Where did the money go, and why did the return not reflect it?”
High-Impact Issues in Complex Entities
The IRS has stated that it uses AI and advanced analytics to select complex partnerships for audits, which signals a focus on structures where allocations, basis, and reporting complexity can mask underreporting.
Refund Fraud Patterns
RRP uses machine learning to identify patterns consistent with refund fraud and noncompliance before the IRS pays refunds.
If you already know that you have historical willfulness problems, undisclosed offshore activity, fabricated deductions, or other criminal tax exposure, you should treat any IRS contact as a potential escalation risk. You should not “explain” discrepancies off the cuff. You should not guess. You should not try to talk your way out of a data-driven mismatch. Those moves can create admissions that an IRS examiner can later interpret as badges of fraud, and in the wrong posture, they can create a roadmap for referral and development.
How to Protect Yourself When AI Flags Your Return
You cannot control whether IRS AI analytics selects your return, but you can control how you respond once the IRS makes contact. Alternatively it is often advisable to choose to fix a pattern of intentional tax noncompliance through amending tax returns which can be very risky outside of a voluntary disclosure program that will virtually eliminate the risk of criminal tax prosecution altogether.
In any event, start with disciplined tax compliance going forward. You should report all income, reconcile information returns, and maintain clean substantiation for deductions. You should also expect the IRS to test your entity or individual tax returns against data it already has or can obtain, especially in industries that generate an auditable electronic payment trail, or structured transactions can be proven.
If you fear criminal tax exposure, you should involve criminal tax defense counsel early and run the audit like damage control. Reverse eggshell audits can operate on parallel tracks, and you should not hand the IRS Criminal Investigation Division an easy narrative through sloppy statements or overbroad document submissions. If you have willful noncompliance and you are not already under criminal tax investigation, you should also ask counsel whether you qualify for the IRS Criminal Investigation Voluntary Disclosure Practice. The IRS describes that practice as a longstanding CI program that can influence whether CI recommends criminal prosecution, while also warning that voluntary disclosure does not guarantee immunity. Timing drives everything here. Once the government starts investigating you, you can quickly lose options.
Contact the Tax Law Offices of David W. Klasing Today
If IRS AI-driven filters have pushed you into a high-risk tax audit lane, you should bring in representation that can manage the civil exam while controlling criminal tax exposure before an examiner hardens a theory of willfulness. Our dual-licensed Civil and Criminal Tax Defense Attorneys and CPAs focus on federal and California civil and criminal tax controversies, and we build audit responses for damage control, not for convenience. We treat eggshell and reverse eggshell fact patterns with the seriousness they warrant because the IRS can disguise a clandestine criminal tax investigation inside a civil posture and use civil contact to gather information while you, or your representative, remain none the wiser.
You gain a decisive advantage when you hire a firm that integrates legal strategy with tax-technical execution under one roof, especially when analytics have flagged a mismatch that the IRS may interpret as intentional. Our attorneys direct the work, and our CPAs serve as employees of the Tax Law Offices of David W. Klasing as part of the legal team, which helps keep sensitive analysis and strategy within attorney-client privilege and work-product protections where the law allows. Our firm also publicly reports that it has never had an audit client criminally prosecuted for tax crimes, including in high-risk eggshell and reverse eggshell scenarios, which reflects the value of early, disciplined audit defense and is a testament to the firm’s training and expertise in this arena.
When you need to move quickly, start with a confidential intake that identifies the actual civil and criminal tax risk drivers, identifies the correct response posture, and secures the fastest route to controlling the outcome of your audit. You can schedule a reduced-rate initial phone consultation through our site HERE or call us at 800-681-1295.
