Big Four firm EY announced a collection of new AI solutions made to enhance the work of its assurance professionals, the latest development in its $1 billion investment in AI.

“Through its $1billion technology investment, EY is bringing AI right to the heart of the audit, accelerating its transformation,” ,” said Marc Jeschonneck, EY’s global assurance digital leader in a statement. “This elevates the attractiveness of EY for talent and equips EY professionals with technology capabilities to shape the future with confidence.” 

Among the new AI-powered solutions is EYQ Assurance Knowledge, which uses generative AI to help with detailed searches and summarization of accounting and auditing content. By integrating EYQ Assurance Knowledge directly into the workflow of the EY Assurance technology platform, the AI can tailor responses based on the profile and context of the audit engagements for companies served, including geography, industry and complexity.

Another product is a new release of EY Intelligent Checklists with AI, which recommends responses to questions in disclosure checklists to support audit professionals in addressing accounting standards and legal requirements. EY is also releasing enhancements to EY Financial Statement Tie Out, which supports audit professionals with accuracy and integrity checks. The enhancements help manage changes between different iterations of company financial statements, alongside existing technology features.

“This launch of new AI capabilities is the first of a series of generative and agentic AI technologies which build on the strong foundations established by integrated and transformative technology,” said Paul Goodhew, EY’s global assurance innovation and emerging technology leader. “This supports the EY organization’s ambition to become the world’s most trusted AI-powered assurance provider.”

This is not the only area where EY is adding AI. For example, the firm recently announced new artificial intelligence capabilities in its EY Blockchain Analyzer: the Smart Contract and Token Review tool, designed to enhance vulnerability detection in smart contracts through greater code coverage and streamline the contract simulation process. A smart contract is a type of self-executing agreement that is usually implemented through a blockchain; the concept undergirds certain cryptocurrencies like Ethereum. The advanced AI feature enable users to automate and simulate the entire contract review process using natural language prompts and the tool’s testing engine. Trained on a library of existing tests and simulations, the feature supports the reviewer’s ability to detect vulnerabilities with higher test coverage while leveraging the same number of resources. The SC&TR tool’s new AI capabilities eliminate several manual steps for smart contract deployment, such as sandbox simulations and test creation. 

The American Institute of CPAs asked officials in the Treasury Department and the Internal Revenue Service for changes in the final regulations governing generation-skipping transfer tax exemptions.

Last April, the Treasury and the IRS issued final regulations providing guidance describing the circumstances and procedures under which an extension of time will be granted to make certain allocations and elections related to the GST tax. The relief provisions are supposed to offer a kind of safety net for taxpayers so their estate planning and tax strategies can be effectively implemented even if some errors are made initially.

The AICPA sent a comment letter last week in response to the recent GST final regulations in which Treasury and the IRS said they’re prepared to issue further revenue procedures or other guidance when they identify situations for which simplified or automatic relief under Section 2642(g)(1) of the Tax Code would be appropriate and administrable. 

The AICPA suggested the Treasury and IRS should extend the relief provided by Rev. Proc. 2004-46 to tax years 2001 and later. The Treasury and the IRS should also provide a similar revenue procedure to Rev. Proc. 2004-46 for situations in which the donor’s GST exemption has been automatically allocated to a prior transfer, but the donor either did not intend for GST exemption to be allocated or the donor was not aware that GST exemption was allocated to the transfer, the AICPA suggested.

The administrative burden on both taxpayers and the IRS to process private letter rulings for small amounts is disproportionate to the amounts involved, the AICPA pointed out. Extending the relief provided by Rev. Proc. 2004-46 to tax years 2001 and later would streamline the process for taxpayers seeking to allocate their GST exemption to post-2000 transfers, thus reducing the administrative burdens and costs associated with PLRs for both taxpayers and the government.

In addition, extending relief to tax years 2001 and later would help taxpayers who didn’t file gift tax returns for certain gifts to trusts, the AICPA recommended. That would enable taxpayers to make more informed decisions and fix their past mistakes so their GST exemptions can better match their tax planning goals.

“While the final regulations offer a safety net for missed GST elections, the high cost and complexity make the Private Letter Ruling approach impractical for many taxpayers,” said Eileen Sherr, the AICPA’s director of tax policy and advocacy, in a statement Wednesday. “The AICPA’s suggestions will help taxpayers effectively utilize their GST exemptions and reduce unnecessary administrative burdens on taxpayers and the IRS.”

Financial advisors, tax professionals and their clients are facing an IRS that is moving in a polar opposite direction from the agency that was bulking up on enforcement only a few months ago.

In the first few months of President Donald Trump’s second term, Treasury Secretary Scott Bessent and Elon Musk’s Department of Government Efficiency have presided over a halting series of mass staff layoffs that could eventually reach as many as tens of thousands of employees and the abandonment of a crackdown on wealthy tax dodgers under President Joe Biden’s team. Court cases may block some of the actions, but they’re already having an impact.

The budget- and staff-cutting efforts thus far certainly amount to “a shock to the system” of a size unmatched over the career of Niles Elber, a member in Caplin & Drysdale’s Washington, D.C.-based office who has represented clients in tax matters for 26 years, he said. Despite as yet unknown answers to questions about the extent of cuts and availability of taxpayer information to outside parties, a “conservative and cautious tax advisor” should counsel clients to “strive to meet their tax compliance obligations,” Elber said in an interview. 

“You don’t want the system turning on you, if, for some reason, you thought you could get away with it,” he said. “Now is not the time to be lax in your tax compliance efforts.”

READ MORE: Wealthy tax cheats set to benefit from Trump plans to halve IRS

Tax Day uncertainty

Clients may be forgiven for thinking otherwise, considering that the Trump administration plans to lay off as much as a quarter or even a half of the roughly 100,000 IRS employees by the end of 2025. The agency’s acting commissioner, its chief financial officer, chief of staff, acting chief risk officer and chief privacy officer reportedly plan to resign after the IRS and the Department of Homeland Security agreed to share private taxpayer information in order to ramp up immigration enforcement. An initial wave of terminations of about 7,000 so-called probationary employees with short tenures who are now stuck on paid administrative leave pending a lawsuit drew condemnation from a bipartisan group of former IRS commissioners pleading with Trump, Musk and the rest of the administration not to fire thousands of employees during tax season.

“If you were to ask the top chief executives in the world to name the best strategy to attack waste in their organizations and balance the books, there is one answer you would be very, very unlikely to hear: Take an ax to accounts receivable, the part of an organization responsible for collecting revenue,” the seven ex-commissioners wrote in a February essay in The New York Times. “Yet the private sector leaders advising President Trump on ways to increase government efficiency are deploying this exact approach by targeting the Internal Revenue Service, which collects virtually all the receipts of the U.S. government — our nation’s accounts receivable division.”

News reports suggest that buyouts and layoffs at the agency could hit 18% of the IRS workforce by the middle of next month, according to an analysis last week by Janet Holtzblatt, a senior fellow at the nonprofit, nonpartisan Urban-Brookings Tax Policy Center. Regardless of the ultimate level of staff and budget cuts to IRS enforcement and customer service from the Inflation Reduction Act passed by Congress and signed by President Biden in 2022, the previous administration’s programs left the building at the end of Biden’s term.

“In the two years since IRA’s passage, the IRS made significant improvements to taxpayer services and enforcement,” Holtzblatt wrote. “More taxpayers had their phone calls promptly answered or received help in person at a Taxpayer Assistance Center, and the agency developed a simpler, online, and free method for filing tax returns (Direct File). The IRS increased collections of taxes owed by higher-income taxpayers, began audits of some of the largest partnerships, and moved to strengthen IT security.  With the rollbacks of funding and staff, those improvements may not be sustainable, and the many other initiatives described in the IRS’s strategic plan are probably not achievable. The IRS may yet undergo transformational change, but starkly different than the intent of the IRA.”

READ MORE: Yellen, IRS trumpet crackdown on wealthy tax cheats

Bessent cites ongoing review, tariffs

Representatives for the Treasury Department and the IRS didn’t respond to inquiries about the potential impact of the cuts to customer service and enforcement. In an interview on NBC’s “Meet the Press” last month, Bessent accused “some very large print media” of “throwing out big numbers” that don’t reflect the reality of staffing levels at the IRS.

“I will tell you that there were about 15,000 probationary employees that we could have let go,” Bessent said. “We kept about 7,500, 8,500 because we viewed them as essential to the mission. And, you know, we will know once we get inside. But what I can tell you is that we are doing a big review. We’re not doing anything. Right now is playoff season for us. April 15th is game day. And even employees who could take voluntary retirement, the rest of the federal workforce, their date was in February. Our date for them is in May. So I have three priorities for the IRS: collections, privacy, and customer service. And we’ll see what level is needed to prioritize all those.”

In other forums, Bessent has also pointed to the importance of Congress passing a bill to extend expiring provisions of the Tax Cuts and Jobs Act, as well as new methods of raising revenue to pay for lower taxes in other areas.

“We’re pushing to get the tax bill done so we can guarantee low taxes, full depreciation within the first year,” Bessent said in an interview with conservative journalist Tucker Carlson last week. “We’ve taken in about $35 billion a year just on the old tariffs — not the new ones. In the CBO [Congressional Budget Office] window, that’s about $350 billion, which pays for a lot of the president’s promises: no tax on tips, no tax on Social Security, no tax on overtime, and making interest deductibility available on autos made in the U.S. Think what the president is doing here: He is backing into an affordability solution for the bottom 50% of wage earners. They are the ones who will benefit from all four of those programs.”

READ MORE: Tax Cuts and Jobs Act expiration: A guide for financial advisors

Taxpayers still under microscope

The economic volatility around tariff policy, though, may affect congressional negotiations on the legislation, and advisors and their clients are trying to prepare much more for any direct ramifications of IRS scrutiny of their returns. 

At a basic level, dialing the number of IRS enforcement personnel “back to more traditional levels” will mean that fewer people “are going to fall under the microscope” of an examination or audit, Elber said. The so-called tax gap between the estimated liability and the amount collected each year — a yawning $696 billion in 2022 — could grow wider still.

The “ability to create a real deterrent” will “substantially go by the wayside when people realize that there’s very little out there to keep people honest,” Elber said. 

“The way that you reduce the tax gap is by enforcement,” he added. “It’s boots on the ground who are working with the data analytics that the IRS has used as a mainstay of enforcement activity at least for the last decade or so. You’re losing a substantial portion of the boots on the ground. … I don’t think anyone knows the extent to which tariffs will potentially fill some of the basket that will be left unfilled.”

Axing 20% of the IRS workforce would be “catastrophic to the enforcement function,” Elber said. At a 50% level, then “I’m not sure what function the IRS is serving anymore” besides processing returns and checks, he said.     

“I cannot recall a comparable situation during my career,” Elber said. “I can’t comprehend how the IRS functions with half the staff they’ve got.”

That doesn’t mean that advisors and their clients should stop being vigilant about their taxes, however. The thinned IRS ranks of audit and enforcement teams will likely exercise the same types of probes as they have over the past decade or so, Elber said.

“You can expect a rather grueling examination,” he said. “That comes down to, basically, the audit lottery. You don’t know at the end of the day how you’re going to fare. Your chances are better than a year ago, but it’s certainly not a situation where there’s no risk.”