Tax preparation firms are rapidly incorporating artificial intelligence into their operations, but regulatory clarity on disclosure requirements remains uncertain. In June, the IRS issued its first guidance for tax practitioners using AI, requiring them to review AI-generated work and ensure billing reflects efficiency gains. However, the guidance did not explicitly address whether clients must be informed when AI is used to prepare their tax returns.
Existing privacy law, codified in Section 7216 of the Internal Revenue Code, generally prohibits tax preparers from sharing client information for purposes other than return preparation without written disclosure and signed consent. However, some exceptions have traditionally applied to tax software, creating ambiguity about how these rules apply to artificial intelligence tools. According to Henry Grzes, lead manager for tax practice and ethics at the American Institute of Certified Public Accountants, the most recent formal IRS guidance on Section 7216 dates to 2013, predating the widespread adoption of modern AI.
Adoption of AI tools among tax professionals has accelerated significantly. A June survey by Blue J and CPA.com found that 60% of tax professionals use AI for research weekly, up from 33% in 2025. Additional applications include advisory services (44%), tax planning (40%), compliance research (39%), document analysis (36%), and drafting (35%). An earlier report from Thomson Reuters found that roughly 25% of tax and accounting professionals surveyed had used public generative AI tools in their work.
Industry representatives have called for additional IRS guidance to clarify whether AI use requires client disclosure, particularly given differences between various AI platforms and their data-handling practices. Some experts argue that if practitioners must disclose information sharing with financial advisors, similar transparency should apply to AI tools making judgments about tax preparation. The AICPA included requests for guidance on AI use in technology in its 2026 recommendations to the IRS.
Experts suggest tax practitioners err on the side of caution by obtaining signed disclosures from clients before using AI. For consumers, proactive inquiry about AI involvement in return preparation, along with assessment of the safeguards in place, is recommended. Violations of Section 7216 can result in fines up to $1,000 and potential jail time up to one year.
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