Summary: The growing use of artificial intelligence (AI) and generative artificial intelligence (GAI) in US tax practice offers significant opportunities for improving research, documentation, tax return preparation and professional advisory services. However, tax practitioners must carefully consider their responsibilities under IRS Circular 230 and other applicable laws. Referring to the IRS publication titled “Introductory Guidelines for Responsible AI Use in Federal Tax Practice,” identified as Issue Number 2026-19 and dated June 24, 2026, the article examines the importance of due diligence, reasonable professional fees, internal compliance procedures, written advice and confidentiality of taxpayer information. Particular attention is given to Sections 10.22, 10.27, 10.36 and 10.37 of Circular 230, together with Internal Revenue Code Sections 6713 and 7216(a). The discussion also highlights the reported Deloitte Australia incident involving AI-generated errors in a government report, illustrating the risks of relying on unverified AI output. Professional guidance, including American Bar Association Formal Opinion 512, is considered alongside developments in state-level AI governance. The article emphasises that tax professionals must independently verify AI-generated facts, legal citations and calculations, maintain secure data-handling procedures, train employees and document their compliance processes. Although AI can enhance productivity and reduce research costs, human judgment, professional accountability and client confidentiality remain essential to responsible tax practice.
- Introduction
- IRS Guidelines on Responsible Artificial Intelligence Use
- Deloitte Australia Incident and Risks of AI-Generated Errors
- Regulatory Framework: IRS Circular 230 Provisions
- Section 10.22 – Due Diligence
- Section 10.27(a) – Professional Fees
- Section 10.36 – Procedures to Ensure Compliance
- Explanation of Compliance Responsibilities Under Section 10.36
- Section 10.37 – Requirements for Written Advice
- IRC Sections 6713 and 7216(a) – Taxpayer Information Confidentiality
- State-Level AI Governance and Professional Guidance
- IRS Guidance: Responsible AI Use Checklist for Tax Professionals
- Conclusion: Human Judgment and Confidentiality Remain Essential
- References
- Caution
Introduction
How does the use of Artificial intelligence make you curious, nervous, or enthusiastic about its vast canvas? With the regular effectiveness of AI making waves everywhere, let us learn what are the guidelines issued by Internal Revenue Service, (IRS) the income tax wing of the U S government and the current thinking of big tax companies like Deloitte or EY from various public announcements made them on line.
IRS Guidelines on Responsible Artificial Intelligence Use
Now from IRS guidelines.
Let me input its public statements.
“Issue Number: 2026-19. Introductory Guidelines for Responsible AI Use in Federal Tax Practice” on June 24, 2026.”
“At a basic level, AI can be defined as the use of machines in a way that mimics human cognitive skills, including judgment, perception, and prioritization. Virtually all professional tax firms use some form of AI, whether they are aware of it or not. From document review platforms and advanced legal research products available from providers, such as Thomson Reuters’ Westlaw Edge, Bloomberg Tax, and Lexis-Nexis, AI is ubiquitous in modern law and accounting offices.”
Yes, one has to admit that there are open-source programs that use generative artificial intelligence (“GAI”), meaning that they generate original content, make their own decisions, intermingle one data from one client with the other creating legal or ethical issues for the tax professionals. As a tax professional, you are duty bound to verify the information provided by the program carefully, verify the judgements arrived at, and arrive at a conclusion where to use it ethically and legally permissible manner.
Deloitte Australia Incident and Risks of AI-Generated Errors
Let me quote an actual improper use of GAI by a reputed firm like Deloitte as quoted by IRS itself.
“For example, the Australian government published a 230-plus page report on its website in July 2025 that Deloitte Australia had prepared for it. The report contained invented quotes attributable to a judge, references to non-existent reports, and books ascribed to the wrong author, all produced apparently by GAI. Deloitte Australia reportedly resolved the matter directly with the Australian government by agreeing to partially refund a portion of the fee it received from the government.”
You can imagine if a single CPA from Australia would have been involved in any other case, and how difficult it would have been to wriggle out of that situation. Perhaps, after paying a hefty fee, his license must have been suspended for some time resulting in total loss of reputation and income from his profession.
Regulatory Framework: IRS Circular 230 Provisions
Let me explain in simple terms, “Regulatory Framework: Circular 230 Provisions” as advised by IRS for our knowledge, section-wise.
Section 10.22 – Due Diligence
“A practitioner must exercise due diligence in preparing or assisting in the preparation of, approving, and filing tax returns, documents, affidavits, and other papers relating to Internal Revenue Service matters; in determining the correctness of oral or written representations made by the practitioner to the Department of the Treasury; and in determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the Internal Revenue Service.”
Please do read the above para several times to understand what it imparts to any tax professional?
Let me narrate my own understanding arrived at after nearly two and a half decades of tax practice as a CPA.
While using GAI, I am expected to thoroughly review, read, understand the language recommended, and verify that the facts, citations, and calculations produced by AI are based totally relevant to the case being handled, and whether they would face the test of judicial review which would need the actual case history of some other case which can easily be quoted legally. It is not a concocted story beautifully coined to arrive at a conclusion all on hallucination basis as they call it. Yes, a human scrutiny and editing are essential to ensure the correctness and compliance with IRS expectations/guidelines.
Section 10.27(a) – Professional Fees
“A practitioner may not charge an unconscionable fee in connection with any matter before the Internal Revenue Service.”
What does it mean in general terms?
AI assisted tasks are expected to reduce the wastage of human labour and help the clients to save the research cost involved. The clients are expected to get the benefits of usage of AI assisted tasks and must be informed of the saving. The clients will appreciate the usage of technology and its cost benefits. I have personally witnessed the increase in consultation fees by more clients referred by the current ones purely on merit basis.
Section 10.36 – Procedures to Ensure Compliance
“(a) Any individual subject to the provisions of this part [i.e., Circular 230] who has (or individuals who have or share) principal authority and responsibility for overseeing a firm’s practice governed by this part, including the provision of advice concerning Federal tax matters and preparation of tax returns, claims for refund, or other documents for submission to the . . . [IRS], must take reasonable steps to ensure that the firm has adequate procedures in effect for all members, associates, and employees for purposes of complying with . . . [Circular 230], as applicable. . . . .
(b) Any such individual . . . will be subject to discipline for failing to comply with the requirements of this section if— (1) The individual through willfulness, recklessness, or gross incompetence does not take reasonable steps to ensure that the firm has adequate procedures . . . , and . . . [any firm members] are, or have, engaged in a pattern or practice, in connection with their practice with the firm, of failing to comply . . . ;
(2) The individual through willfulness, recklessness, or gross incompetence does not take reasonable steps to ensure that firm procedures in effect are properly followed, . . . [resulting] in a pattern or practice . . . or;
(3) The individual knows or should know . . . of . . . a pattern or practice . . . , and the individual, through willfulness, recklessness, or gross incompetence fails to take prompt action to correct the noncompliance.”
Firms must deploy internal policies and procedures for compliance with Circular 230 in the AI space, with coverage that includes:
- Staff
- Comprehensive training on use of AI (the risks – technological and other – and the requirements).
- Rules applicable internally (within the firm)
- Established protocols for secure data handling, AI accuracy monitoring, etc.
- Contracting with external providers
- Outsourced or third-party AI tools should be vetted.
And all steps and processes documented to show adherence to section 10.36.
Explanation of Compliance Responsibilities Under Section 10.36
The above instructions clearly emphasize that the person handling AI must ensure adequate laid down procedures for all employees, associates and members to be followed in terms of IRS circular 230. Proper steps and processes followed must be documented in terms of section 10.36. In case of legal/IRS investigations, these references will be asked for confirmation.
Section 10.37 – Requirements for Written Advice
The concerned official handling GAI matters is expected to give written instructions which should be based upon the citations from GAI provided the facts quoted are independently verified and could be justified, not necessarily based upon GAI only.
IRC Sections 6713 and 7216(a) – Taxpayer Information Confidentiality
IRC sections 6713 and 7216(a): Civil and criminal preparer penalties apply for unauthorized use or disclosure of tax return information. These sections do draw the attention of tax preparers to face the consequences for improper disclosure of clients’ tax information, even if advised by GAI to do so.
State-Level AI Governance and Professional Guidance
One is tempted to enquire about whether any state governments have given guidance for usage of GAI for tax matters?
Yes, let us recollect that several states, including California, Colorado, Illinois, and Utah, have enacted AI governance legislation focusing on transparency, reducing bias, and protecting consumers.
In addition, professional organizations such as the American Bar Association have released guidance. For example, the ABA’s Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 512, titled, Generative Artificial Intelligence Tools, on July 29, 2024. This opinion addresses the growing use of GAI in legal practice and discusses key ABA Model Rules of Professional Conduct that practitioners must consider when leveraging AI.
IRS Guidance: Responsible AI Use Checklist for Tax Professionals
To conclude, IRS has again codified its instructions on GAI in the following manner.
“The items listed below have already been amply discussed, but let’s do a quick recap
- Identify, understand, and stay updated on any relevant federal or state-specific laws, regulations, and guidance that pertain to your professional activities.
- Establish secure AI data handling protocols and access controls.
- Document AI usage and verification processes.
- Foster transparency and accountability in all AI practices.
- Prepare clear procedures for handling breaches or errors.
- Provide necessary staff training.
- Vet third parties’ AI offerings when or before purchasing.
- Never upload sensitive data to unsecured sites.
- Treat the written text that AI generates as drafts.
- Review the resulting documents thoroughly for factual and legal accuracy (e.g., always check citations) and any problematic bias.”
Conclusion: Human Judgment and Confidentiality Remain Essential
I would draw the attention of tax professionals that usage of GAI is an unavoidable technological development but due diligence, honest verification of facts, and confidentiality remain the fundamental duties of the tax professionals.
References
IRS: Issue Number: 2026-19. Introductory Guidelines for Responsible AI Use in Federal Tax Practice
Deloitte: AI-enabled Tax Transformation | Deloitte
EY: AI and the transformation of tax compliance | EY – US
Caution
My views collected from IRS and other sources throw the latest evolving AI resources for tax preparation, advisory, or governance purposes. Whatever a private company may claim about GAI, IRS has the final say. Hence, this article for US tax purposes from IRS.
