Legal Tax Expert Discusses AI in IRS Auditing and the Future of the ERC

Although there can be benefits to utilizing AI for auditing taxpayers, there are also concerns about what guardrails are in place regarding privacy, bias, transparency, and the potential for unintended consequences, such as taxpayers being subjected to audits for returns simply falling outside the usual fact patterns.

“I think that’s where I’m more worried about it,” James Creech, a senior manager with Baker Tilly’s tax advocacy and controversy team, began. “What happens when the IRS AI finds [an issue] because it’s 1.2 standard deviations away from the norm because they’re designed to find anything over one standard deviation,” he added.

Conversely, Creech explained that the AI tools the IRS uses have seen “significant improvements” in areas that include partnerships where the audits are more targeted and have been much better than anything Creech has seen before. He further noted that the AI is coming up with targeted questions about what the IRS should be asking and as a result, “it let them do better issue selection faster.”

How to record the lease liability and corresponding asset

The most challenging aspect of documenting the lease liability and right-of-use asset involves data collection. Prior to recording the lease liability, it is essential to verify the accuracy of the lease term, the lease payment, and ensure that the discount rate is based on reliable data. Similarly, before recording the right-of-use asset, it is important to make necessary adjustments for initial direct costs, prepayments, and lease incentives.
Once this data is in hand, the process of combining it is straightforward. Let’s take a step-by-step look at how to record the lease liability and corresponding right-of-use asset.

Understanding the proportional amortization method

In March 2023, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) aimed at improving the accounting and disclosures for investments in tax credit structures. The news made headlines as it expanded the use of the proportional amortization method for certain tax credit equity investments.

For public business entities, the amendments are effective for fiscal years beginning after Dec. 15, 2023, including interim periods within those fiscal years. All other entities will have an extra year to adopt the changes, which will be effective for fiscal years beginning after Dec. 15, 2024, including interim periods within those fiscal years.

Is the Foreign Pollution Fee Act a Carbon Price?

A national-level carbon price—a tax or cap-and-trade scheme placed on CO2 or other greenhouse gases—may seem distant in the U.S., especially since the Inflation Reduction Act, which included major climate policy, omitted one. However, policymakers on both sides of the aisle have been nibbling around the edges of carbon taxes.

Most recently, Senators Bill Cassidy (R-LA) and Lindsey Graham (R-SC) have proposed a fee on some emissions-intensive imports in the Foreign Pollution Fee Act of 2023 (FPFA). While The Wall Street Journal editorial board critiqued the proposal in an editorial titled “Republicans for a Carbon Tax,” and carbon tax advocates have been friendly to the bill, it is not a carbon tax—or even a carbon tariff.

What’s in the Bill?