Case Study Technology is having an enormous impact on many organizations, including the Internal Revenue Service (IRS). Governments are increasingly using artificial intelligence (AI) combined with data analytics to find tax evaders. A new program being created by the IRS analyzes transactions and participants to discover tax avoidance. Tax avoidance does not include those who are underreporting income or overextending deductions but rather those (often high-income individuals) who do not file a tax return at all.

The IRS suffers from underfunding, so the technology that they utilize is old and out-of-date. Data firms such as SAS Institute already work with state governments to help auditors use AI to increase the revenue generation of each auditor. This failure by the government to detect tax fraud costs the average U.S. household $3,000 to subsidize those who are underpaying. It's been a bad cycle for the IRS as lower funding results in fewer audits and less detection of fraud. Estimates suggest that between 2011 and 2013, the value of uncollected taxes was more than $380 billion (which equates to 14 percent of taxes owed that are never being paid).

On the opposite side of the fence from the IRS are the tax preparers comprised of the Big Four accounting firms and others. These companies are using AI to attempt to take advantage of all opportunities to minimize their clients tax bills. AI can make it easier to exploit tax laws that may be complex and at times have gray areas that are open to interpretation. To combat this, the IRS will increase its ability to fight tax evasion with the development and implementation of machine learning algorithms and AI-enabled systems combined with predictive analytics.

1. What are the ethical issues with tax avoidance? 2. Is it fair how the IRS and tax preparers are using AI? 3. What are the ethical implications of applying AI in these ways?