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AI is Reshaping Tax Compliance

AI is Reshaping Tax Compliance

What U.S. Tax Pros Must Do to Stay Ahead

Edna Garcia
January 31, 2025 • Estimated Reading Time: 6 minutes

Hey — It’s Edna.

Welcome to this week’s edition of The Growth Ledger, your resource for modernizing your tax practice.

The IRS is ramping up AI-driven enforcement, using machine learning to target audits, track high-risk taxpayers, and close compliance gaps more efficiently than ever. This shift is already impacting firms of all sizes, from Big 4 giants to small independent practices.

At the same time, tax authorities around the world—from Brazil to the Philippines—are pushing AI further, using it not just to detect fraud but to adjust tax enforcement policies in real time.

So what does this mean for U.S. tax pros?

More targeted IRS audits, requiring stronger client defense strategies
Faster tax law updates, shrinking the window for tax planning adjustments
The need for AI-powered advisory services, beyond just compliance work

The IRS and AI: What’s Changing?

AI-Powered Audit Targeting

The IRS is now using AI to audit high-risk taxpayers more precisely, particularly high-net-worth individuals, crypto traders, and pass-through entities.
AI models are cross-referencing income, deductions, and offshore transactions at a scale previously impossible.

Cracking Down on the Tax Gap

The IRS estimates $688B in unpaid taxes annually and is using AI to identify anomalies in filings before audits occur.
Expect more automated compliance checks—even for small firms with clients who have complex deductions or multiple income streams.

The IRS is no longer just reacting to compliance issues—it’s getting ahead of them with AI. Firms need real-time audit defense strategies to protect their clients.

Global Tax Authorities Are Moving Even Faster

While the IRS is rolling out AI for audit selection and enforcement, tax authorities abroad are already using AI to adjust tax policies dynamically.

Brazil’s AI Tax System

Brazil’s HMX Tax Intelligence System (TIS) analyzes 2.5M transactions daily, detecting VAT fraud and automatically adapting enforcement strategies.
AI identified $21M in noncompliance patterns from POS devices in just months—leading to faster policy updates.

AI-Powered Tax Reforms in the Philippines

The Bureau of Internal Revenue (BIR) is developing AI-driven policy adjustments to fine-tune tax incentives and enforcement thresholds in real time.

What This Means for U.S. Tax Professionals

1. More Targeted Audits

AI is eliminating randomness in audit selection—meaning if a client gets flagged, there’s data-backed reasoning behind it.
Solution: Use AI-powered risk analysis tools like Thomson Reuters Checkpoint Edge or Numiro.ai to mirror IRS enforcement tactics and proactively assess client risk.

2. Shorter Timeframes for Tax Planning Adjustments

AI is detecting and closing tax loopholes faster, reducing the time firms have to adjust strategies before new regulations kick in.
Solution: Tools like TruePilot and Sage Intacct AI can model tax scenarios 3–5 years ahead, helping firms prepare clients proactively.

3. AI-Enhanced Tax Advisory Will Become the New Standard

Clients are looking for advisors who can provide AI-driven insights, not just compliance services.
Solution: Firms using AI to optimize deductions, forecast tax obligations, and preempt policy changes will differentiate themselves from competitors.

AI isn’t replacing tax professionals—but it’s changing the expectations for tax services.

What Your Firm Can Do Next

Adopt Predictive Compliance Tools: AI-powered platforms like Thomson Reuters Checkpoint Edge and HIVE AI Tax can track regulatory changes and help firms adjust in real time.

Audit-Proof Clients with AI: Use AI-driven anomaly detection tools to spot potential audit triggers before the IRS does.

Strengthen Tax Planning with AI Forecasting: Instead of reacting to tax law changes, model client tax scenarios proactively with AI-powered forecasting tools.

Tax professionals are more than compliance experts—they’re strategic advisors who help clients navigate complex regulations, mitigate risks, and plan with confidence. How is your firm adapting? Reply with your thoughts, questions, or challenges—and keep scrolling for recommended reading to dive deeper.

Until next time,
Edna