Can your tax preparer use AI without telling you? Some experts say IRS rules aren't clear

Artificial intelligence (AI) is increasingly being integrated into the workflows of tax firms and accountants, but experts warn that IRS privacy rules may not be keeping pace with this adoption. While the IRS provided guidance in June regarding AI-related requirements for tax practitioners, it did not explicitly address whether using generative AI to prepare tax returns should be disclosed to clients.

Existing tax laws outline when disclosures are necessary, such as when tax documents are shared with third parties, but exceptions typically apply to tax software. This ambiguity leaves some experts questioning whether AI usage should be openly communicated to clients.

A recent survey by the American Institute of Certified Public Accountants (AICPA) found that approximately 25% of tax and accounting firm professionals have used public-facing, open-source generative AI tools, while only 9% have utilized proprietary tax-specific generative AI technology. Many tax practitioners are now relying on AI frequently, with 60% using it for tax research at least weekly, according to a report from Blue J and CPA.com.

Tax privacy is governed by Section 7216 of the Internal Revenue Code, which generally prohibits tax preparers from sharing or using a taxpayer's information for purposes other than preparing the return, unless the taxpayer is given a disclosure detailing the sharing and signs it. However, the IRS guidance on this topic has not been updated since 2013. Some tax practitioners argue that using AI to prepare returns should be disclosed to clients, given the reliance on AI to make judgment calls and provide advice.

The AICPA has also called for additional guidance from the IRS on the use of technology, including AI, in tax preparation. Tax practitioners should exercise caution and obtain a signed disclosure from clients if they plan to use AI for tax return preparation, as penalties for violating tax laws can range from fines to imprisonment. For individual taxpayers, it may be beneficial to inquire with their tax practitioner about the use of AI in preparing their return.