IRS to Expand Large Partnership Audits Using Artificial Intelligence

Danny Werfel, commissioner of the Internal Revenue Service, said his organization is investing in artificial intelligence and other tools to identify complex tax evasion schemes.

In a recent report, the Government Accountability Office defined large partnerships as groups of businesses with at least 100 partners and a minimum of $100 million in assets.

The IRS seeks to expand its Large Partnership Compliance initiative to cover hedge funds, real estate investment partnerships and other organizations. LPC was established in 2021 to flag potentially noncompliant enterprises for audit using data analytics.

According to Werfel, the agency’s new tools allow it to identify previously undetected patterns and more confidently locate where large partnerships are hiding their income.

The GAO warned, however, that the IRS’ statistical models for selecting such partnerships have design flaws, such as potentially unrepresentative samples and a lack of a plan to integrate feedback from audit results.

The watchdog noted that the audit rate for large partnerships has declined since 2008, Nextgov/FCW reported Monday.