IRS to tax pros: Check AI’s work

The IRS is worried about workslop.

In a recently released alert, 2026-19, the agency’s Office of Professional Responsibility stressed the need for tax professionals to carefully review any AI-generated materials for errors or false statements. The alert referenced an incident that occurred last year, when Deloitte Australia was forced to refund the Australian government part of the $290,000 it had paid for a report that contained multiple hallucinations.

The new guidance gives further clarification on how tax practitioners can stay compliant with Treasury Circular 230, the set of rules for how tax professionals must conduct themselves when working with the IRS, while using generative AI (GAI). The alert states that practitioners must “thoroughly review all AI-created documents and language incorporated into writings before delivery to a client or submission to the IRS,” including any citations, facts, or calculations.

When giving written recommendations to clients, tax pros “should treat the [AI] advice as a starting point,” the alert said, and not “rely on GAI projections or representations without verification.”

The guidance is timely. In recent weeks, reports by two Big Four firms, KPMG and EY Canada, were found to be littered with AI-produced misinformation, per the Financial Times. (40 out of 45 citations in the KPMG report, ironically entitled “Redefining excellence in the age of agentic AI,” were “at least partially AI hallucinations,” PC Mag reported.)

Billing in the age of AI: Strikingly, the IRS implied that practitioners’ billing should reflect time and cost savings resulting from AI. “Cost savings should be passed on openly, with billing practices that reflect the efficiencies gained from the use of GAI,” the agency wrote in the alert. “Practitioners should not only disclose…the AI activities performed, but also fairly credit to the client’s account any cost reductions.” (We imagine some tax pros might be patting themselves on the back for getting rid of hourly billing.)

The alert also stated that, to maintain compliance with Circular 230, tax practitioners must have a firm understanding of AI and its potential to produce errors. “Lack of technological competence could lead to improper advice or flawed filings,” it warned. Firms also need to train staff on AI, and have internal policies covering such areas as “secure data handling,” “AI accuracy monitoring,” and vetting third-party vendors that use AI, the IRS said.