Can your tax preparer use AI without telling you? Some experts say IRS rules aren't clear — CNBC

RESOLVING THE LEDGER

Like many other industries, tax firms and accountants are incorporating artificial intelligence more heavily into their workflows. But as adoption grows, some experts say IRS privacy rules haven't kept pace — making it worthwhile for consumers to ask how their tax preparer uses AI .

In June, the IRS released its first AI-related guidance for tax practitioners, including requirements that they review and verify AI-generated work and that billing should reflect efficiencies gained through AI. However, it did not specifically say whether using generative AI to prepare tax returns should be disclosed to clients.

Existing law dictates when tax practitioners must make disclosures and obtain a client's signed permission — for example, when that professional shares your tax documents with your financial advisor or another third-party expert. But it also includes exceptions, which typically have applied to tax software. And that, say some experts, is where the ambiguity lies.

"Our members, as well as the AICPA, are clearly trying to get our arms around this because it's obviously all changing, and more and more folks are using AI in their practices, and they want to do the right thing," said Henry Grzes, lead manager for tax practice and ethics with the American Institute of Certified Public Accountants, which represents the accounting profession.

A 2024 report from the Thomson Reuters Institute, based on a survey of 330 tax and accounting firm professionals, found that about 25% of respondents reported using public-facing, open-source generative AI tools in their work, and just 9% had used proprietary tax-specific generative AI technology.

Now, many tax practitioners are using AI frequently, and in a variety of ways, according to a June survey from Blue J, an AI-powered tax-research platform, and CPA.com. A majority — 60% — use AI for tax research at least weekly, up from 33% in 2025, according to the report, which is based on a survey of more than 1,000 tax professionals.

The report also shows that 44% of respondents use AI for advisory projects, 40% for tax planning, 39% for compliance research, 36% for document analysis and 35% for drafting.

Protecting taxpayers' privacy is governed by Section 7216 of the Internal Revenue Code, which says tax preparers generally cannot share or use a taxpayer's information for purposes other than preparing the return.

Otherwise, the taxpayer must be given a disclosure detailing how and why the information is being shared, and the client must sign it.

"The problem with 7216 is that the last formal guidance we've received from the IRS goes back to 2013," Grzes said.

"So when you think about how the tax practice landscape has changed in those 13 years, we're really hoping for some additional guidance from the IRS, both for 7216 and the use of AI," Grzes said.

In the AICPA's 2026 response to the IRS' annual request for input on which tax issues should be prioritized in the next year, the group asked for additional guidance related to the use of technology — including AI — in tax preparation. It was one of dozens of recommendations made by the AICPA.

"If you have to have a disclosure to send a tax return to, say, a financial advisor that your client has been with for 20 years, wouldn't you think it's appropriate to do that if you're going to send [their information] to an AI tool that's going to prepare the return?" said Joshua Youngblood, founder of The Youngblood Group in Dallas and an IRS enrolled agent. He also co-owns an AI tool that provides tax research but does not ingest client data.

"I would argue that [an AI tool] is really not just like your tax software, because a lot of people are relying on AI to make judgment calls and to tell them what to do," Youngblood said.

Additionally, not all AI is the same, Grzes said. For example, there's a difference between using an AI platform that uses input to train itself and a closed AI platform that does not — a difference that the IRS potentially could address through additional guidance, he said.

"In tax and accounting, trust is the currency of the profession. The output shapes filings and client advice, so AI has to meet the standard practitioners already live by," said CPA Elizabeth Beastrom, president of tax, audit and accounting professionals at Thomson Reuters, in an email. The company's tax-preparation software, which includes AI tools, is broadly used by accountants.

"When an AI platform is used solely to prepare a specific client's return, with that client's data protected and used only for that purpose, it plays a role similar to other software and third-party processing tools practitioners already rely on — and the practitioner remains fully accountable and in the loop," Beastrom said.

Grzes said tax practitioners should err on the side of caution and get a signed disclosure from clients if they are using AI to prepare returns.

"Because we have no formal guidance yet on this topic, our recommendation would be, be safe, as opposed to finding out, 'uh-oh, I should have gotten this,'" Grzes said. "Let's say six months from now you get more concrete guidance from the IRS that is more definitive, and you didn't get it, and then now you're exposed."

The penalties for knowingly violating the statute include a fine of up to $1,000 or jail time of up to one year, or both. Other penalties could be applied depending on the specifics of the situation.

For non-individual tax returns, tax preparers can include 7216 disclosures in their engagement letter, or memorandum of understanding, that they provide to clients, Grzes said. For individual returns, however, a 7216 disclosure must be a separate document.

For consumers, it may be worth asking a tax practitioner whether AI is involved in preparing a return.

"AI is becoming more ubiquitous every day," Grzes said. "If I was a consumer, I would want to know ... what guardrails does the tax preparer have in place to make sure that their personal i...

Can your tax preparer use AI without telling you? Some experts say IRS rules aren't clear — CNBC | AIPROPX