A recent audit of the Australian Taxation Office’s use of artificial intelligence offers a warning to other tax authorities considering AI tools. The audit report revealed systemic failures in AI oversight, demonstrating that without careful implementation in the deployment phase, AI can create ethical problems that outweigh any efficiency gains.
The ATO uses AI to help taxpayers file their taxes, detect fraud, and communicate with taxpayers. The report revealed the 43 in-service AI models were insufficiently monitored, leaving blind spots in compliance, accuracy, and transparency considerations. Without proper oversight, automated decisions can become unreliable, undermining trust in government tax systems.
Responsible AI deployment comes with predictable outcomes that can be evaluated regularly. AI models operate based on patterns identified in the data they have been trained on. These derived patterns can be incorrect and used to reinforce biases, producing erroneous outcomes and misleading decision-makers—so they require calibration.
The ATO’s failure to conduct ethical assessments for nearly three-quarters of its AI models was a major concern highlighted in the report. The agency also failed to ensure the reproducibility or auditability of its AI models, making it difficult to verify outcomes or evaluate accuracy. This is a significant flaw in a system that requires constant feedback to properly handle taxpayers’ financial rights and obligations.
Such governance gaps offer a lesson: The possibility of increased efficiency may be alluring, but irresponsible deployment can introduce systemic risks that undermine benefits.
As the US government explores the potential for AI-driven enhancements through initiatives such as the Department of Government Efficiency, it should learn from the ATO audit report. Structured monitoring, ethical assessments, and AI-specific risk frameworks with transparent oversight mechanisms must be deployed simultaneously with models. Doing so would ensure AI serves the public good while limiting unintended consequences.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts analyzed consequences of reducing the IRS’s workforce, a pair of US Tax Court rulings involving R&D tax credits, and more.
Insights
Don’t Put Core IRS Services at Risk in the Name of ‘Efficiency’
Former IRS commissioner Charles Rettig questions the recent firings and mass resignations at the IRS, noting that while technology has helped the agency with efficiency, it still needs experienced agents and taxpayer services.
IRS Criminal Investigation Is Best Investment the US Can Make
Former IRS special agent Wilfred Castro says IRS-CI seizes billions in criminal assets every year, deters financial crime, and enhances public trust in the tax system.
California Needs Longer-Term Solutions to the SALT Deduction Cap
RJS Law’s Lauren Suarez and Vanst Law’s Allison Soares examine tax incentives state lawmakers could consider, adding that expanding public-private partnerships could lower residents’ costs of living.
Indian APA Program Grows as MNEs Avoid Transfer Pricing Disputes
Khaitan & Co’s Raghav Bajaj and Mihir Chitalia explain the growing success of India’s APA program and outline what multinationals should consider.
Rulings Show Local Laws Can Govern Contracts for R&D Tax Credits
ZMF Law’s Dean Zerbe examines a pair of US Tax Court findings against the IRS finding that the funding analysis for R&D tax credits can hinge on a local jurisdiction’s laws.
OECD’s Pillar Two Guidance Targets Implementing Jurisdictions
DLA Piper experts comment on the OECD’s latest Pillar Two guidance requiring multinationals and governments to stay in line with GloBE rules.
Columnist Corner
The Multistate Tax Commission’s proposal to make tax administration easier for an increasingly mobile workforce doesn’t go far enough, Andrew Leahey says in his latest Technically Speaking column.
Expanding the safe harbor threshold and adding some income-based tweaks would make the proposal truly effective, Andrew writes, and “more likely to be adopted by states.” Read More
How Are You Handling This Tax Season?
Bloomberg Tax Insights & Commentary is collecting a series of short essays (250-350 words) about how tax practitioners are coping with this year’s unusual—and somewhat chaotic—tax season. We want to hear:
- How you are managing client expectations with so many changes
- Go-to practices for dealing with the IRS during tax season
- How you’re dealing with stress and finding time to relax
The deadline for submissions is March 19, 2025. We’ll publish the best answers at the end of March.
Please send draft essays or any questions to rbaker@bloombergindustry.com with the words “Tax Season Essay” in the subject line of your email. Thank you!
News Roundup
Trump Aims to Cut IRS Workforce in Half by End of Year
The Trump administration is aiming to cut up to half of the IRS’s workforce compared to its January head count, according to a person familiar with the matter.
European Commission Set to Push on Tax Breaks for Clean Cars
The European Commission laid out plans for proposals to help countries in the bloc better use tax incentives to encourage take-up of cleaner cars.
State Tax Initiative to Define Digital Products Hits Obstacle
The chairman of an initiative crafting a uniform definition for “digital products” for state tax purposes expressed doubts Thursday that the final product would include a carve-out for business-to-business transactions—a key objective for commercial users.
IRS Crypto Rule Pullback Moves Closer With Senate Vote
The Senate voted on Tuesday to block an IRS reporting rule requiring certain cryptocurrency brokers to provide tax information on transactions on their platform, moving a step closer to nullification of the regulation.
Tax Management International Journal
How to Decode §987 Transition Rules
Grant Thornton practitioners analyze what companies should consider when transitioning to the new computation methodologies provided under the transition rules of the final §987 regulations.
Tax Management Memorandum
PBM Contracts Could Expose Plan Sponsors to Fiduciary Liability
A plan sponsor’s fiduciary duty to be transparent in Pharmacy Benefit Manager contracts safeguards plan participants’ interests and mitigates the risk of litigation, regulatory penalties, and reputational harm, say Hall Benefits Law practitioners.
How to Fund R&D with Less Reliance on Governmental Subsidies
Dr. Janice Jaferian and Christopher J. Leisner discuss how enterprises may be able to expand funding their R&D programs by securitization of their IP licenses.
Career Moves
Maciej Kacymirow was appointed head of the tax practice in the Warsaw office of Greenberg Traurig.
Hale Sheppard, Cassandra Bradford, and Samuel Grier joined Eversheds Sutherland as partners in its tax practice group in Atlanta.
David Brown joined Cozen O’Connor as a member in its private client, trusts, and estates group.
Christa Ketchum joined Jones Walker as special counsel in its tax practice group and tax credit finance team in Birmingham, Ala.
If you’re changing jobs or being promoted, send your submission to TaxMoves@bloombergindustry.com for consideration.
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