IRS AI Guidance Leaves Client Disclosure Question Open
The IRS issued introductory guidance for AI use in federal tax practice in June, but CNBC reports it does not directly state whether preparers must notify clients when generative AI helps prepare returns. The guidance applies existing Circular 230 duties to AI-assisted work, including accuracy review, client confidentiality and reasonable fees. The AICPA is advising preparers to disclose AI use as a precaution, CNBC reports.
The IRS Office of Professional Responsibility issued introductory guidelines for responsible AI use in federal tax practice on June 24, applying existing Circular 230 professional standards to AI-assisted tax work. The guidance requires practitioners to remain responsible for the accuracy of work submitted to the IRS or provided to clients, protect client confidentiality, and charge reasonable fees, according to the IRS bulletin and Thomson Reuters.
A separate question remains unresolved: whether a tax preparer using generative AI to prepare a return must tell the client. CNBC reports that the IRS guidance does not directly address disclosure to clients, even as tax firms adopt AI across research, document review, drafting and tax-preparation workflows.
Existing rules and the disclosure gap
Section 7216 of the Internal Revenue Code governs when tax practitioners need to disclose to clients that their information is being shared with other parties and when signed permission is required. CNBC reports that the statute's exceptions have generally applied to tax software, creating uncertainty over whether, and under what circumstances, an AI system falls within those exceptions.
The IRS bulletin identifies privacy, confidentiality and data-protection risks, including the possibility that client information could be exposed or reused in unintended ways.
Henry Grzes, lead manager for tax practice and ethics at the American Institute of Certified Public Accountants, told CNBC that the profession is trying to determine the appropriate approach as AI use expands. CNBC reports that the AICPA is advising preparers to err on the side of caution by disclosing their AI use to clients.
Human review remains the baseline
The IRS guidance does not treat AI output as a substitute for professional judgment. According to the IRS and Thomson Reuters, Circular 230 due-diligence and competence obligations require practitioners to understand the technology's risks and limitations and to review AI-generated work before filing it or giving advice to a client.
Thomson Reuters reported that the guidance specifically connects these obligations to known generative-AI failure modes, including fabricated information, bias and opacity. The IRS bulletin likewise identifies hallucinations, bias and lack of transparency as ethical and legal risks.
The guidance also addresses pricing. Under Circular 230, practitioners cannot charge an unconscionable fee. According to Thomson Reuters, the OPR cautioned that billing practices should account for efficiencies where AI reduces time spent on research or drafting.
Adoption is already broad
The disclosure debate is emerging amid measurable AI use in accounting and tax work. CNBC cited a Thomson Reuters Institute survey of 330 tax and accounting professionals in which about 25% of respondents reported using public-facing, open-source generative AI tools, while 9% reported using proprietary tax-specific generative AI. CNBC also cited a Blue J and CPA.com survey reporting that 60% of practitioners use AI for tax work.
For data and AI teams serving regulated professional-services firms, the guidance shows how existing professional duties can govern AI use while tool-specific disclosure rules remain unsettled. The IRS guidance establishes the importance of those underlying duties, while CNBC's reporting indicates that the client-disclosure question remains unsettled.
Key Points
- 1IRS guidance applies Circular 230 duties to AI-assisted tax work, requiring human review, confidentiality protections and reasonable billing practices.
- 2CNBC reports that Section 7216 exceptions for tax software leave client-notification requirements for generative AI legally ambiguous.
- 3The guidance shows how existing professional duties can govern AI use while tool-specific disclosure rules remain unsettled.
Scoring Rationale
The IRS guidance affects the governance of AI use across tax and accounting firms, where confidential financial data and professional liability are central concerns. The unresolved disclosure question is particularly relevant to vendors and ML teams building AI-assisted workflows for regulated professional services.
Sources
Primary source and supporting public references used for this report.
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