IRS Provides Introductory Guidelines for Responsible Use of AI in Federal Tax Practice

(Parker Tax Publishing July 2026)

On June 24, the IRS Office of Professional Responsibility issued a bulletin on the responsible use by federal tax practitioners of artificial intelligence (AI). The bulletin highlights the risks of irresponsible AI use and provides a list of best practices for tax practitioners to integrate AI into their workflows. "Introductory Guidelines for Responsible AI Use in Federal Tax Practice," OPR Alert 2026-19 (6/24/26).

Background

On June 24, the IRS Office of Professional Responsibility issued a bulletin titled "Introductory Guidelines for Responsible AI Use in Federal Tax Practice." The bulletin provides background on artificial intelligence (AI), discusses the consequences of improper use of AI, and identifies best practices for tax practitioners to incorporate AI into their workflows.

Artificial intelligence (AI) is the use of machines in a way that mimics human cognitive skills, including judgment, perception, and prioritization. According to the OPR, virtually all professional tax firms use some form of AI, whether they are aware of it or not. For example, AI is ubiquitous in document review platforms and advanced legal research products.

The OPR noted the recent emergence of open-source programs that use generative AI (GAI), meaning that they generate original content. These programs have the ability to make discretionary decisions, devoid of any human interaction. This capability is a result of GAI's use of complex pattern-recognition capabilities that continually interact and evolve, allowing the program to learn from itself.

The use of GAI can result in cost savings, rapid data analysis, and, for the IRS, advanced applications such as fraud detection and audit risk enhancement. However, the OPR pointed out that GAI also has limitations, such as fabricated outputs (i.e., "hallucinations"), bias, and lack of transparency, and these pose serious ethical and legal risks.

Consequences of Improper AI Use

The OPR observed that courts have increasingly sanctioned lawyers for improper use of GAI, mainly due to fake citations or other hallucinations contained in legal filings. Typical penalties imposed in these cases have included financial sanctions -- often amounting to several thousand dollars; public censure; required completion of legal ethics or professional responsibility courses; default judgments entered against the responsible party; removal from representation of a party to the matter; and disciplinary referrals to state bar authorities.

Observation: In Clinco v. Comm'r, T.C. Memo. 2026-16, the Tax Court found that fictitious caselaw in briefs submitted by the taxpayer's attorney may have been the result of AI. The court stopped short of imposing sanctions on the attorney because it was not absolutely clear from the record that the attorney used AI. The court found that "a bit of embarrassment" for the attorney's failure to cite check, failure to 'fess up, and (if it occurred) use of AI to write a section of the brief was enough. But the court noted that courts have begun to more seriously sanction lawyers who use AI as a shortcut in drafting.

The OPR explained that the sanctions imposed for improper use of AI stem from violations of duties of candor and competence, and they often entail reputational harm as attorneys must notify clients and affected judges about the court-ordered sanctions. The OPR said that the consequences emphasize the need for tax practitioners to act with care and precision when using AI tools, reinforcing the importance of diligent human oversight.

Circular 230 Provisions Applicable to Use of GAI

The OPR provided the following guidance regarding tax practitioners' Circular 230 obligations when using GAI:

Section 10.22 - Due Diligence. The OPR said that, in order to meet their due diligence obligations, practitioners must thoroughly review all AI-created documents and language incorporated into writings before delivery to a client or submission to the IRS. Due diligence requires verifying the accuracy of facts, citations, and calculations produced by AI. Practitioners cannot rely solely on AI; human scrutiny and editing are essential to ensure correctness and compliance with IRS expectations.

Section 10.27(a) - Fees. Practitioners may not charge unconscionable fees in connection with any matter before the IRS. According to the OPR, billing clients for manual labor or time that was not actually spent, or double billing for AI-assisted tasks, may violate Section 10.27. Cost savings should be passed on openly, with billing practices that reflect the efficiencies gained from the use of GAI. Practitioners should not only disclose, in general or specific terms as needed, the AI activities performed, but also fairly credit to the client's account any cost reductions.

Section 10.35 - Competence. Practitioners are required under Section 10.35 to possess the necessary competence to engage in practice before the IRS. The OPR said that practitioners must understand both the law and the technology used in their representation of clients, including AI systems' operational mechanics, limitations, and risks. They must understand how AI develops content, recognize the potential for bias or errors, and be able to evaluate whether AI outputs are suitable for use in IRS matters. Lack of technological competence could lead to improper advice or flawed filings.

Section 10.36 - Procedures to Ensure Compliance. According to the OPR, firms must deploy internal policies and procedures for compliance with Circular 230 in the AI space, with coverage that includes training for staff on the use of AI, established protocols for secure data handling and AI accuracy monitoring, and vetting of third-party AI tools. In addition, all steps and processes should be documented to show adherence to Section 10.36.

Section 10.37 - Requirements for Written Advice. Practitioners may give written advice on federal tax matters if, in part, it is based on reasonable factual and legal assumptions. The OPR stated that practitioners therefore cannot rely on GAI projections or representations without verification. For legal documents, citations must be checked and cases read. Financial forecasts, inputs, and formulas need to be confirmed. If the system's logic is opaque, reliance may be unreasonable under Section 10.37. When drafting written advice with GAI, practitioners must independently authenticate all factual and legal information. Blind reliance on what AI yields, especially when the underlying logic or sources are unclear, may constitute unreasonable reliance. Practitioners should treat the advice as a starting point, subject to thorough review before providing it to clients.

Preparer Penalties

Under Code Secs. 6713 and 7216(a), civil and criminal preparer penalties apply for unauthorized use or disclosure of tax return information. Reg. Sec. 301.7216-1(b)(3) broadly defines tax return information as "any information, including, but not limited to, a taxpayer's name, address, or identifying number, which is furnished in any form or manner for, or in connection with, the preparation of a tax return of the taxpayer."

In addition, Section 10.51(a)(15) of Circular 230 prohibits the willful disclosure or use of tax return information in an unauthorized manner, including in violation of the Code.

State Law and Professional Guidance

The OPR also observed that several states, including California, Colorado, Illinois, and Utah, have enacted AI governance legislation focusing on transparency, reducing bias, and protecting consumers. In addition, professional organizations such as the American Bar Association have released guidance. For example, the ABA's Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 512, titled, Generative Artificial Intelligence Tools, on July 29, 2024. This opinion addresses the growing use of GAI in legal practice and discusses key ABA Model Rules of Professional Conduct that practitioners must consider when leveraging AI.

Best Practices for Responsible AI Use

As a recap, the OPR provided the following list of best practices for the responsible use of AI by tax practitioners:

Identify, understand, and stay updated on any relevant federal or state-specific laws, regulations, and guidance.

Establish secure AI data handling protocols and access controls. Document AI usage and verification processes.

Foster transparency and accountability in all AI practices. Prepare clear procedures for handling breaches or errors. Provide necessary staff training.

Vet third parties' AI offerings when or before purchasing.

Never upload sensitive data to unsecured sites.

Treat the written text that AI generates as drafts.

Review the resulting documents thoroughly for factual and legal accuracy (e.g., always check citations) and any problematic bias.

For a discussion of the duties and responsibilities of tax practitioners under Circular 230, see Parker Tax ¶272,100.

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