The IRS isn't sending more human auditors after your clients. It's sending algorithms. And as of 2026, it's sending a lot more of them.
The agency now operates 129 active AI use cases, up from 54 in 2024 and just 10 in 2022. Every return that passes through the system receives a DIF score — a Discriminant Function score rating how unusual a return looks compared to statistically similar filers. The higher the score, the more likely an audit flag. That scoring system has existed since the 1960s. What's new is the machine learning layer now running on top of it, making scoring more granular and harder to predict.
Here's where the AI is focused in 2026:
Cryptocurrency and digital assets.
This is the most significant change this filing season. Form 1099-DA — the digital asset proceeds form — went live for tax year 2025 reporting. The IRS's AI now automatically cross-references 1099-DA data against reported income. If a client has unreported or underreported crypto proceeds, the mismatch triggers an automated CP2000 notice before a human is involved. Clients who traded crypto in 2025 and didn't mention it to you need a conversation now.
Income pattern matching.
The AI is comparing income patterns year-over-year at a granularity that older DIF scoring didn't have. A significant jump in Schedule C income without a corresponding increase in 1099 inputs raises a flag. So does a schedule that looks statistically inconsistent with the taxpayer's occupation. The system is looking for what doesn't fit.
High-income and high-complexity filers.
Projected audit rates for individuals with income over $10 million are rising to 16.5% — up from 11% in 2019. For certain complex business structures, the rate is projected at 22.6%. The IRS is allocating AI resources to the cases with the highest enforcement return.
Partnership and pass-through entities.
Large partnerships have been an IRS priority since the Large Business and International division expanded. The AI is now better at tracing income through multi-layer partnership structures than it was three years ago. If you have clients with complex pass-through stacks, their documentation requirements have quietly increased.
The complication — worth knowing about — is that the IRS ran this AI expansion while simultaneously cutting 25% of its human workforce between January and May of 2025. Fewer people to review AI-generated flags, more automated correspondence going out. The result has been an increase in CP2000 notices that are factually incorrect. Practitioners are calling them "robo-audit" notices: automated correspondence that doesn't match the actual return, requiring professional response just to get cleared.
The practical implication: the IRS's AI is issuing more notices, including erroneous ones. The burden of responding falls on the practitioner. The value of representation when a CP2000 arrives is going up, not down.
For your client relationships, the most useful thing right now: make sure every client who had crypto activity, unusual income fluctuations, or complex entity structures in 2025 knows their return documentation needs to be audit-ready before it's filed.
IRS workforce cuts reached 25% by May 2025 — from 103,000 to 77,000 employees. GAO warned that the combination of staff reductions plus AI expansion, without a workforce development plan, increases the risk that IRS AI produces more errors. Keep that context in mind when a client receives an automated notice.
The IRS runs its AI scoring models six times per tax year, not just at filing. A return can be flagged months after submission. An unresolved issue in the file doesn't go away when tax season ends.
CP2000 underreporter notices have increased. If you're seeing more of these from clients this spring, you're not imagining it — the system is generating more of them, including incorrect ones.
Form 1099-DA is new territory for both clients and firms. The IRS's matching algorithms for digital assets are only as good as the 1099-DA data that exchanges report. Discrepancies between exchange data and client records are already causing issues.
Every return is compared against millions of others simultaneously. Clean documentation is no longer optional.
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Pull your active client list and identify: anyone who had cryptocurrency or digital asset activity in 2025; anyone with a significant year-over-year change in Schedule C or K-1 income; any clients with complex pass-through entity structures.
These clients are in the highest AI-flag risk categories. Make sure their return documentation is organized before filing — or before they call you after receiving a CP2000. Fifteen minutes of proactive review now is worth hours of CP2000 response work later.
