Tax firms and accounting practices have rapidly increased their adoption of artificial intelligence tools across various functions, from research to document analysis and return preparation. However, regulatory guidance governing when tax preparers must inform clients about AI usage appears insufficient, according to industry experts and professional organizations.
The IRS released its first formal guidance on AI for tax practitioners in June, requiring professionals to review and verify AI-generated work and ensure billing reflects AI-related efficiencies. The guidance notably did not specify whether clients must be informed when generative AI is used to prepare their tax returns. Existing privacy law under Section 7216 of the Internal Revenue Code generally prohibits tax preparers from sharing taxpayer information for purposes other than return preparation without written disclosure and client consent. However, the statute includes exceptions that have traditionally applied to tax software, creating ambiguity around whether AI tools fall into similar categories.
Survey data shows significant growth in AI usage among tax professionals. A June survey of over 1,000 tax professionals found that 60% use AI for tax research weekly, up from 33% in 2025. Substantial portions also reported using AI for advisory services (44%), tax planning (40%), compliance research (39%), document analysis (36%), and drafting (35%). Industry leaders note that the IRS has not updated formal guidance on Section 7216 since 2013, leaving practitioners uncertain about compliance requirements in an evolving technological landscape.
Expert opinion diverges on whether current regulations adequately address AI usage. Some argue that AI tools differ meaningfully from traditional software because they may train on input data or make independent judgments, potentially warranting disclosure similar to sharing information with third-party advisors. Others contend that AI platforms used solely on specific client data within closed systems function similarly to existing software tools and third-party processing services. The American Institute of Certified Public Accountants has requested additional IRS guidance on technology use in tax preparation.
Given the regulatory uncertainty, industry leaders recommend that tax practitioners take a cautious approach and obtain signed disclosures from clients regarding AI usage. Violations of disclosure requirements can result in penalties up to $1,000, imprisonment up to one year, or both. For consumers, experts suggest asking tax preparers directly about AI involvement in their return preparation.
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