Artificial Intelligence Amplifies State Tax Audits on High Earners
As fears about artificial intelligence (AI) veer from job displacement to broader societal control, state tax departments harness this potent technology to boost audits on high earners significantly. Robert Frank of CNBC highlights how already high-taxed Democrate-controlled states like New York and California are increasingly deploying AI to scrutinize the tax declarations of the wealthy, intensifying efforts to reclaim unreported income.
In the past year, high-tax states have issued a surge in audit letters, with figures marking a 56% increase from the previous year. The targets? Affluent individuals who have relocated across state lines during the pandemic and remote workers whose physical locations do not align with their company’s base.
AI’s role in these audits is groundbreaking and unnerving for those it targets. By analyzing vast datasets, AI systems identify patterns and anomalies in tax returns more efficiently than human auditors ever could. This capability is instrumental in tracking high earners who might have underreported their incomes or falsely claimed to have moved permanently to tax-haven states.
Accountants and tax lawyers confirm that the rate of audits has escalated dramatically over the last six months. Tax authorities are challenging the permanence of moves made during the COVID-19 pandemic, insisting that many owe state taxes irrespective of their new residences. Furthermore, states are scrutinizing remote workers who, despite working entirely out-of-state, are employed by companies based in places like New York.
The fiscal implications for states are significant. With California facing a $38 billion deficit and New York bracing for a $10 billion shortfall next year, the financial incentive to pursue wealthy taxpayers is compelling. The infusion of $80 billion into the IRS, earmarked for enforcement, means that high earners are likely to face audits from both state and federal levels.
Questions linger about the efficacy and fairness of AI-driven audits. Critics ask whether these automated systems might overreach or misinterpret complex tax data, potentially leading to wrongful accusations. Yet, proponents argue that AI could revolutionize tax enforcement by uncovering hidden patterns of evasion that would be impossible for human auditors to detect.
As states and the IRS increasingly rely on artificial intelligence to bolster their audits, the landscape of tax enforcement is undergoing a profound transformation. This shift promises greater efficiency but raises important questions about privacy, fairness, and the transparency of AI algorithms in legal and financial contexts. Whether this trend will lead to a more equitable tax system or merely shift the burden more heavily onto certain groups remains to be seen.
