AI-Powered Tax Fraud: How To Stay Safe This Season

Forbes

13-04-2025

Doing taxes
getty
Will tax season become a Nexus for AI-powered identity theft? How can we protect ourselves from AI tax fraud? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Answer by Pat Kinsel, founder/CEO Proof.com & former venture capitalist, on Quora:
Tax season is already becoming a significant target for AI-powered identity theft, and this threat is likely to grow exponentially in the coming years. The IRS has been battling fraudulent returns for decades, but the emergence of sophisticated AI tools presents new challenges to our tax system's integrity.
The reality is that tax fraud doesn't necessarily require advanced AI tools. For years, criminals have been altering W-2 forms and other tax documents using basic editing software. What AI does is dramatically lower the barrier to entry while increasing the scale and sophistication of these operations. Even before generative AI became widespread, the IRS was experiencing billions of dollars in fraudulent refund claims annually. Now, with the help of AI, that figure could balloon considerably.
While mainstream AI tools incorporate safeguards against document forgery – similar to how Photoshop has long prevented counterfeiting currency – black market alternatives specifically designed for creating fraudulent tax documents are becoming increasingly available. These tools can generate convincing fake forms that claim false deductions or inflated refunds with remarkable authenticity, making detection far more difficult.
The IRS does have verification mechanisms in place. They cross-reference information received directly from employers, financial institutions, and other third parties. When you report income from your job or investments, the IRS already has matching documentation from those sources. This creates a natural check against certain types of fraud. However, the agency faces significant challenges that AI exacerbates.
First, the sheer volume of tax returns – approximately 140 million individual returns expected to be filed by April 15 – makes comprehensive verification practically impossible. Second, many deductions rely on documentation that isn't independently reported to the IRS, creating verification blind spots. Third, recent IRS staff cuts may limit their ability to manually review suspicious returns, precisely at a time when AI-generated fraud requires more human oversight.
Also concerning is how AI could enable more sophisticated versions of existing tax scams. Identity thieves have long filed fraudulent returns using stolen Social Security numbers, claiming refunds before legitimate taxpayers file. With AI, these schemes could become more convincing and harder to detect through traditional means.
To protect yourself from becoming a victim of AI-powered tax fraud, consider these essential steps:
The most effective long-term solution will require developing more sophisticated identity verification systems that digitally link real identities to transactions across the tax ecosystem. This approach would create a trusted framework where tax documents could be securely verified at every stage of the process.
Until such systems become standard, individuals need to remain vigilant. By understanding the evolving nature of tax fraud and taking proactive measures to protect personal information, taxpayers can significantly reduce their risk of becoming victims during what has unfortunately become a prime season for AI-enhanced identity theft.
This question originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world.