IRS Expands AI Use as Staffing Gaps Raise Risk

The tax deadline has passed. For the IRS, the work is just beginning.

Behind the filing deadlines and refund cycles, the Internal Revenue Service (IRS) is running 126 active artificial intelligence applications across audit selection, fraud detection, taxpayer services and operational workflows. That number stood at 10 in August 2022. The expansion reflects a deliberate shift in how the IRS manages enforcement at scale.

Most of the agency’s active AI use cases are categorized as either improving operational efficiency or advancing tax compliance and fraud detection, according to a March 2026 report from the U.S. Government Accountability Office (GAO). Of those 126 applications, 61% were still in development, with the rest in active operation.

The IRS has used basic data analytics to select returns for audit for decades. The shift to AI changes the scale and precision of that process. Machine learning models now analyze millions of returns simultaneously, scoring each for noncompliance risk and flagging those that warrant attention. The selection criteria are deliberately not made public to avoid giving noncompliant filers a map to avoid detection.

AI is being used to review large volumes of tax and other data to assist staff in identifying which tasks to prioritize and which returns are at highest risk for noncompliance and may need immediate attention, according to a March 25 GAO blog post. The agency has focused this capacity on large corporations, complex partnerships, high-wealth individuals and digital asset users, which represent the highest-value enforcement targets.

The criminal investigation function uses AI tools, including systems developed by Palantir, to process suspicious activity reports and identify compliance patterns at a speed that previously required many hours of agent time per case. Revenue agents also have access to generative AI for drafting information document requests and audit reports, with the AI producing a first draft that the agent reviews and finalizes. The IRS has also begun deploying artificial intelligence to detect fraud in real time during the return filing process itself, flagging emerging compliance threats as returns come in.

On the taxpayer-facing side, AI-powered chatbots handle routine inquiries and reduce load on call centers. PYMNTS reported that filers turning to tools like ChatGPT and Claude for pre-filing questions reflects a broader pattern: consumers who once turned to tax software or a CPA as their first resource are now opening AI tools to ask about deductions, freelance income reporting and refund estimates before ever opening a form. The IRS is operating in an environment where both sides of the filing relationship are increasingly AI-assisted.

The Staffing Problem

The expansion of AI use cases at the IRS is happening alongside a workforce contraction that creates a direct operational risk.

Major staffing reductions at the IRS in 2025 could greatly affect its ability to use AI. Officials in the Research, Applied Analytics and Statistics group said they lost 63 employees who had been working full- or part-time on AI, according to the GAO. The IRS workforce fell from approximately 103,000 to 77,000 employees between January and May 2025, a reduction of roughly 25%. The two business units most involved in AI, the IT division and the Research, Applied Analytics and Statistics unit, spent more than $58 million on AI in fiscal year 2025 combined, with an additional $32 million projected for fiscal year 2026.

IRS officials said they had not identified the skills needed to support AI or developed a plan to address the gaps, and GAO warned that the combination of staff reductions, expanded AI initiatives and the absence of a workforce plan increases the risk that IRS AI efforts will not succeed.