AI in Tax Practice: Professional Responsibility, Client Protection, and Practical Judgment
Artificial intelligence is no longer a distant technology issue for lawyers, accountants, and tax professionals. It is already being used to summarize documents, draft correspondence, organize facts, analyze regulations, and speed up research. Used carefully, AI can help professionals work more efficiently. Used carelessly, it can create serious risks: inaccurate advice, fabricated citations, disclosure of confidential information, improper billing, and professional discipline.
Recent professional responsibility guidance places those risks in clear context. The American Bar Association's Formal Opinion 512 on Generative Artificial Intelligence Tools explains how lawyers' duties of competence, confidentiality, communication, supervision, candor, and reasonable fees apply when generative AI is used in legal work. In the tax field, the IRS Office of Professional Responsibility has likewise emphasized that existing standards under Circular 230 apply to AI-assisted tax practice. The message is practical and important: AI may assist the professional, but it does not replace professional judgment.
AI Can Be Useful, But It Cannot Be the Decision Maker
Generative AI can produce polished text quickly. That strength is also a danger. A response can sound confident while being incomplete, outdated, or simply wrong. Lawyers have already faced sanctions for filings that relied on nonexistent cases or inaccurate AI-generated authorities. Tax professionals face a similar problem when AI is used to prepare written advice, summarize IRS guidance, analyze audit risks, or draft submissions to the government.
Under Treasury Department Circular No. 230, practitioners must exercise diligence and competence in practice before the IRS. Section 10.22 requires diligence as to accuracy in preparing or assisting with returns, documents, affidavits, and other papers relating to IRS matters. Section 10.35 requires the knowledge, skill, thoroughness, and preparation necessary for the matter. Section 10.37 sets standards for written advice on federal tax matters, including the requirement to consider relevant facts and use reasonable factual and legal assumptions.
In practical terms, a professional cannot send AI-generated analysis to a client, the IRS, or a court without meaningful review. Authorities must be checked. Facts must be verified. Assumptions must be tested. The professional remains responsible for the work product.
Confidentiality and Taxpayer Data Are Central Concerns
AI tools often work by receiving user prompts and uploaded materials. That raises an immediate question: what happens to the client information entered into the system? For lawyers, ABA Formal Opinion 512 emphasizes the duty to protect information relating to a representation before using an AI tool. For tax practitioners, the concern is just as serious because tax files often contain Social Security numbers, financial account information, income data, business records, and privileged or sensitive communications.
The IRS has long warned tax professionals that safeguarding taxpayer information is not optional. IRS Publication 4557, Safeguarding Taxpayer Data, explains that every tax professional has a role in protecting taxpayer information and highlights security practices such as access controls, encryption, multi-factor authentication, employee training, and written data security planning.
Before any AI platform is used for client work, a firm should know whether the platform stores prompts, uses client data for training, allows vendor personnel to access submissions, provides enterprise-level confidentiality protections, and supports audit logs or other controls. Sensitive client data should not be uploaded to public or unsecured AI tools.
Written Tax Advice Requires Human Review
Federal tax advice is fact-specific. The right answer often depends on documents, timing, taxpayer intent, procedural posture, jurisdiction, and how multiple Code sections, regulations, IRS pronouncements, and cases fit together. AI may help organize a first draft, but it cannot be treated as an authority.
Circular 230 Section 10.37 is especially important here. Written advice must be based on reasonable factual and legal assumptions, must consider all relevant facts and circumstances known or reasonably knowable, and must not rely on representations or assumptions when that reliance would be unreasonable. If an AI tool cannot explain its sources or if its output cannot be independently verified, relying on it can create professional risk.
Clients should expect tax advice to come from a professional who has reviewed the law, understood the facts, and applied judgment to the client's specific situation. That is the difference between generic information and legal advice.
Billing Must Reflect the Work Actually Performed
AI also affects billing. If technology helps complete a task more efficiently, professionals must be careful not to bill as if the task took the same amount of manual time that it would have required without the tool. ABA Formal Opinion 512 addresses this point for lawyers under the reasonable-fee rules. Circular 230 also prohibits unconscionable fees in matters before the IRS.
The fair approach is straightforward: clients should be charged for the professional work actually performed, including the time spent reviewing, correcting, analyzing, and applying AI-assisted material. They should not be charged inflated time for work that technology materially reduced, and they should not be asked to pay undisclosed technology charges that are really ordinary firm overhead.
Firms Need Policies, Training, and Controls
The attached materials also point to a broader operational lesson. AI use is not just an individual judgment call. Firms need policies. They need training. They need to decide which tools are approved, what information may be entered, how outputs must be checked, when clients should be told, and how AI-assisted work should be documented.
Circular 230 Section 10.36 requires firm leaders with responsibility for federal tax practice to take reasonable steps to ensure adequate compliance procedures. ABA Formal Opinion 512 similarly states that law firm managers and supervisors must establish clear AI policies and train lawyers and nonlawyers on the ethical and practical risks of AI use.
What This Means for Clients
For clients facing an IRS audit, tax controversy, penalty dispute, collection issue, or need for written federal tax advice, the key takeaway is not that professionals should avoid AI entirely. The key takeaway is that technology must be used with discipline.
A careful tax law practice should be able to explain how it protects client information, verifies legal authorities, reviews written advice, supervises staff, and bills for work fairly. Those are not abstract ethics issues. They directly affect the quality of the advice a client receives and the trust a client places in the professional relationship.
How The Karam Firm Approaches Tax Representation
The Karam Firm represents clients in federal and state tax matters where accuracy, discretion, and judgment matter. In tax controversy and IRS representation, small mistakes can become expensive problems. A missed deadline, unsupported position, careless disclosure, or inaccurate submission can affect the outcome of an audit, appeal, penalty dispute, or collection matter.
Our approach is built around careful factual development, legal analysis, procedural awareness, and clear client communication. We use modern tools where they can support efficient work, but professional judgment remains at the center of the representation. Clients deserve more than a fast answer. They deserve an answer that has been checked, contextualized, and tied to their facts.
If you are dealing with an IRS notice, audit, tax dispute, penalty issue, or need federal tax advice, The Karam Firm can help you evaluate the issue, understand your options, and respond with a strategy grounded in the law and your specific circumstances.
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Disclaimer
This article is for general informational purposes only and does not constitute legal, tax, accounting, or other professional advice. Reading this article does not create an attorney-client relationship with The Karam Firm, PLLC or any of its attorneys. Tax laws, IRS procedures, and OTA practices may change, and the application of those rules depends on the specific facts and circumstances of each taxpayer. Taxpayers should consult qualified counsel before responding to a tax notice, filing an appeal, submitting a refund claim, requesting penalty or interest abatement, commenting on an OTA opinion, or taking any tax position.
