US Treasury and IRS Enhance Fraud Prevention Efforts with AI Technology

 

The U.S. Treasury Department and the Internal Revenue Service (IRS) are increasingly using artificial intelligence (AI) to combat financial crime and improve tax compliance. The Treasury recently reported it thwarted $4 billion in improper payments over the past year, significantly enhancing its fraud prevention capabilities through technology.

In a press release, the Treasury highlighted its success using machine-learning AI, which helped halt $1 billion in check fraud and identify $3 billion in other improper payments during the fiscal year 2024, which ran from October 2023 to September 2024. This total represents a sixfold increase in fraud prevention compared to the previous year. Treasury official Renata Miskell remarked that AI has been “transformative” for the agency, enabling it to detect hidden patterns and anomalies that fraudsters use to exploit the system. However, Miskell noted that human oversight remains essential, as a human must make the final determination on labeling a transaction as fraudulent.

In parallel, the IRS is also ramping up its efforts to tackle tax fraud. The agency reported recovering $1.3 billion from high-income taxpayers since late 2023, focusing on the returns of wealthy individuals. The IRS has estimated that the annual tax gap, representing uncollected taxes, is around $496 billion for the years 2014-2016, with projections indicating it could rise to $688 billion by 2021.

As AI technology becomes more prevalent in financial systems, regulators have expressed concerns about potential risks to safety and soundness. U.S. Treasury Secretary Janet Yellen emphasized the importance of balancing AI innovation with established principles of risk management, highlighting the potential benefits of increased efficiency in the financial system.

The Treasury is responsible for distributing approximately 1.4 billion payments each year, totaling over $6.9 trillion. In its fraud prevention statement, the agency affirmed its commitment to ensuring taxpayer money is managed effectively, aiming to pay the right person the right amount at the right time.