The tax preparation industry is rapidly adopting artificial intelligence tools, but regulatory clarity on client disclosure requirements has not kept pace with the technology’s expanding use.
In June, the IRS released its first guidance addressing AI use by tax practitioners, establishing requirements that professionals review and verify AI-generated work and that billing reflect efficiencies gained through automation. However, the guidance did not specifically address whether using generative AI to prepare tax returns necessitates client notification. Current law governing tax practitioner disclosures, codified in Section 7216 of the Internal Revenue Code, has not received formal updates since 2013, creating ambiguity about how existing privacy rules apply to AI-assisted tax preparation.
Survey data indicates widespread AI adoption among tax professionals. A June survey of more than 1,000 tax professionals found that 60% use AI for tax research at least weekly, up from 33% in the previous year. Approximately 44% use AI for advisory projects, 40% for tax planning, and 39% for compliance research. Earlier survey data from 2024 showed that roughly 25% of tax and accounting firm professionals had used public generative AI tools in their work.
Professional organizations and practitioners differ on appropriate practices. The American Institute of Certified Public Accountants has recommended that tax preparers err on the side of caution by obtaining signed client disclosures when using AI, while some software companies argue that AI tools functioning as processing systems should be treated similarly to traditional tax software. Experts note distinctions between different AI platforms, such as whether systems use input data for self-training, which could inform future regulatory decisions.
For consumers, experts recommend directly asking tax preparers about AI involvement in their returns and evaluating the specificity of responses regarding data safeguards. Violations of disclosure requirements carry potential penalties including fines up to $1,000 and jail time up to one year.
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