The US Internal Revenue Service (IRS) has started using artificial intelligence to investigate tax evasion at multibillion-dollar partnerships as it looks for ways to better police hedge funds, private equity groups, real estate investors and large law firms.

The announcement on Friday (Sep 8) was intended to show how a more muscular IRS is using some of the US$80 billion allocated through last year’s Inflation Reduction Act to target the wealthiest Americans and tackle the kinds of cases that had become too complex and cumbersome for the beleaguered agency to handle.

The agency’s new funding is supposed to help the IRS raise more federal revenue by cracking down on tax cheats and others who use sophisticated accounting manoeuvres to avoid paying what they owe. But the allocation has been politically contentious, with Republicans claiming that the IRS will use the funding to harass small businesses and middle-class taxpayers. Earlier this year, Republicans succeeded in clawing back US$20 billion as part of an agreement to raise the nation’s borrowing cap.

The political fight has put the onus on Democrats and the Biden administration to show that the funding is primarily enabling the IRS to target wealthy Americans and corporations who may have engaged in tax evasion.

“These are complex cases for IRS teams to unpack,” Daniel Werfel, the IRS commissioner, said in a briefing with reporters. “The IRS has simply not had enough resources or staffing to address partnerships; in a real sense, we’ve been overwhelmed in this area for years.”

The fight over IRS funding is continuing, as the House and the Senate try to agree on spending legislation to avert a possible government shutdown at the end of the month. Senate Democrats want to keep the base budget of the IRS steady while holding on to some of the Inflation Reduction Act money that lawmakers had agreed to rescind as part of the debt limit deal, while House Republicans are pushing for far deeper cuts that would eat into the tax agency’s enforcement budget.

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Senator Ron Wyden, chair of the Senate Finance Committee, said the new enforcement tools that the IRS is deploying show the importance of the funding.

“This news stands in stark contrast to the approach taken by House Republicans, who want to allow wealthy tax cheats to continue business as usual, paying little to no tax and asking middle-class taxpayers to foot the bill,” Wyden said. NYTIMES