The IRS is undergoing significant changes, including a staff exodus and increased reliance on artificial intelligence, which may initially hinder its ability to effectively conduct audits and protect taxpayer rights. With less than 1% of returns audited between 2013 and 2021, audit rates are particularly low, especially for individuals with incomes between $50,000 and $500,000, but higher for those claiming the earned income tax credit. The loss of experienced staff and the introduction of AI raise concerns about the agency's capacity to handle complex audits and maintain customer service quality. AI's role in audits is still evolving, and there is skepticism about its ability to replace human oversight, potentially leading to inaccuracies in audit outcomes. The IRS faces challenges in balancing modernization efforts with effective revenue collection, especially given the fiscal importance of addressing the nearly $700 billion annual tax gap.

The IRS has seen less than 1% of returns audited from 2013 to 2021, with individual audit rates at 0.44% and corporate at 0.74%, due in part to inconsistent resources over the years.

Audit rates vary by income and credits claimed; individuals with $10 million or more in income saw an 8.7% audit rate, while those earning between $50,000 and $500,000 experienced rates of 0.5% or less.

Recent staff reductions, including layoffs and retirements, primarily in enforcement roles, coincide with efforts to modernize the IRS using AI, sparking concerns about audit governance and taxpayer rights.

The IRS's transition to AI aims to enhance efficiency but raises concerns about accuracy and the potential for AI models to be trained on faulty data, particularly as human oversight diminishes.

Customer service is at risk, with fewer staff available to manage audits and resolve taxpayer issues, potentially leading to increased frustration and delays in addressing automatically generated audit assessments.

Treasury Secretary Scott Bessent emphasizes improving IRS operations for families, while cautioning that AI should not replace human input entirely, particularly in complex audit scenarios.

The IRS faces a significant challenge in closing the nearly $700 billion annual tax gap while ensuring that technological advancements do not compromise the quality and accuracy of audits.