Navigating the Algorithmic Ledger: AICPA and Former IRS Commissioner Launch CART to Tackle Artificial Intelligence Risks in Tax Practice

By Financial Policy and Technology Desk
Published in collaboration with professional accounting and tax administration reporting channels.

Main Facts

The American Institute of CPAs (AICPA), in a decisive move to address the rapid integration of emerging technologies into financial systems, has joined forces with former Internal Revenue Service (IRS) Commissioner Danny Werfel to spearhead a landmark initiative. The newly formed Council on AI Risk in Tax (CART) is designed to unite multidisciplinary leaders from across the accounting, legal, technological, governmental, and academic sectors. The primary mandate of CART is to forge practical, forward-looking approaches to the responsible use, governance, and oversight of artificial intelligence within both tax administration and private tax practice.

As generative AI and advanced machine learning models transition from experimental novelties to core components of modern business infrastructure, the tax ecosystem faces a fundamental shift. Compliance, advisory services, and governmental administration are experiencing unprecedented disruption. However, this technological leap brings profound challenges regarding information integrity, data privacy, accountability, and systemic risk management.

CART’s founding roster reflects a broad cross-section of the financial and legal landscape, incorporating key stakeholders such as the National Association of Enrolled Agents (NAEA) and the Federation of Tax Administrators (FTA). These organizations share a collective realization: while AI offers staggering efficiency gains, it cannot be left to police itself in an arena as high-stakes and heavily regulated as taxation.

The launch of the council does not occur in a vacuum. It arrives amid heightened regulatory scrutiny, most notably concerning recent pronouncements from the IRS Office of Professional Responsibility (OPR). The OPR recently issued guidelines suggesting that tax practitioners should actively pass on AI-generated cost savings to their clients—a directive rooted in Treasury Circular 230 provisions prohibiting unconscionable fees. This has sparked intense debate across the industry, with the AICPA actively seeking regulatory clarification over concerns that the guidance fails to account for the massive upfront investments, ongoing operational costs, and liability risks associated with implementing safe, enterprise-grade AI systems.

Chronology

To understand how the tax profession arrived at this critical juncture of artificial intelligence adoption and regulatory friction, it is essential to trace the timeline of events leading up to the formation of CART:

• Early Adoption Phase (2022–2023): As generative AI tools enter the public consciousness, progressive tax firms and software developers begin experimenting with automated document review, research synthesis, and basic return preparation tools. Tax authorities similarly begin exploring predictive analytics to optimize audit selections.
• The Regulatory Spotlight (Late 2023–Early 2024): Recognizing the potential pitfalls of unregulated automation, federal regulators and professional bodies begin drafting foundational ethical parameters. Questions surrounding data security, client confidentiality under IRC Section 7216, and the reliability of AI outputs (such as "hallucinations") take center stage at national accounting conferences.
• The AI Risk Framework Publication (Early September 2026): The AICPA publishes an introductory risk framework and set of guidelines designed to help federal tax practitioners navigate the integration of AI responsibly. This document serves as the conceptual bedrock for future compliance strategies.
• The IRS OPR Guidance Controversy (Mid-September 2026): The IRS Office of Professional Responsibility releases guidelines interpreting Treasury Circular 230, intimating that efficiency gains derived from AI tools should directly reduce client billing. Shortly thereafter, the AICPA publicly petitions the IRS for clarification, arguing that the language overlooks the substantial capital expenditures, risk-mitigation protocols, and value-pricing models utilized by modern CPA firms.
• Establishment of CART (Late September 2026): In direct response to the mounting complexities of technology-driven tax practice and regulatory ambiguities, the AICPA and former IRS Commissioner Danny Werfel officially establish the Council on AI Risk in Tax.
• Ongoing 2026–2027 Roadmap: CART schedules a series of rolling summits and working group sessions throughout the year to refine existing risk frameworks, draft additional compliance tools, and establish a unified voice for the tax profession in ongoing dialogues with federal regulators.

Supporting Data

The urgency behind the creation of CART is underpinned by quantitative and qualitative realities facing the accounting and legal professions. Industry data indicates that the adoption curve for artificial intelligence in professional services is steeper than any technological shift since the widespread adoption of electronic spreadsheets and cloud computing.

• Investment and Implementation Costs: Implementing secure, enterprise-grade AI solutions in a mid-sized to large tax practice is not a matter of simply downloading consumer-grade software. Firms routinely invest tens to hundreds of thousands of dollars in specialized tax-trained large language models (LLMs), application programming interface (API) integrations, rigorous staff training, and cybersecurity audits to ensure compliance with strict data privacy laws.
• The Productivity-Risk Paradox: While preliminary studies suggest that generative AI can reduce the time required for initial tax research and document drafting by 30% to 50%, the error rate of unverified AI outputs remains a significant liability. A single computational or statutory misinterpretation by an unvetted AI tool can lead to severe IRS penalties, professional malpractice claims, and reputational damage for the practitioner.
• Circular 230 Parameters: Treasury Circular 230 governs practice before the IRS. Under current interpretations, practitioners are barred from charging unconscionable fees. However, the profession has long relied on value pricing—charging based on the complexity, strategic value, and expertise brought to a client engagement rather than a strict hourly billing model. The tension between passing along technological cost savings and maintaining a value-based pricing structure represents a multi-billion-dollar valuation debate across the industry.

Official Responses

The formation of the Council on AI Risk in Tax has garnered strong statements from key leaders across the tax and accounting ecosystem, emphasizing the dual imperatives of innovation and rigorous governance.

Danny Werfel on High-Stakes Governance

Former IRS Commissioner Danny Werfel, who is co-leading the initiative alongside the AICPA, underscored the gravity of introducing autonomous tools into an environment governed by strict legal statutes and high financial stakes:

"Tax is high stakes, and we cannot assume that emerging AI tools will police themselves. The AI risk framework published earlier this month provides a starting point. Through this new council, the AICPA is bringing the tax community together to refine that framework and explore additional tools that can help tax administrators and practitioners realize the benefits of AI while managing the various and material risks that AI presents."

Werfel’s perspective bridges the gap between regulatory oversight and private sector execution, bringing invaluable insight from his tenure leading the nation’s tax collection agency.

Melanie Lauridsen on Strategic Necessity

Melanie Lauridsen, the AICPA’s Vice President of Tax Policy & Advocacy, echoed these sentiments, framing the integration of artificial intelligence not merely as an operational upgrade, but as a fundamental transformation of the profession:

"AI has the potential to transform how tax is administered and practiced, but requires thoughtful governance, practical risk management, and trusted guidance. That’s why this council was launched, bringing together leaders from across the tax ecosystem to evolve the recently published risk framework, but also to develop additional tools and insights needed to adopt AI responsibly while preserving trust, accountability, and confidence in tax."

Lauridsen highlighted that the proactive development of industry-led guidelines is the most effective way to safeguard the integrity of financial reporting before heavy-handed, reactive mandates are imposed from outside the profession.

Implications

The establishment of CART and the broader discourse surrounding artificial intelligence in taxation carry profound long-term implications for CPAs, corporate tax departments, software developers, and individual taxpayers alike.

1. Redefining the Practitioner-Client Relationship

As routine compliance tasks become automated, the role of the tax professional is rapidly evolving from a preparer of historical documents to a strategic advisor. However, this evolution introduces complex questions regarding billing models. If the time spent on data entry and form assembly decreases due to AI, practitioners must successfully articulate and monetize the value of their higher-level strategic analysis, risk assessment, and interpretive judgment. The ongoing dispute over the IRS OPR guidelines underscores the urgent need for a clear regulatory definition of fair pricing in an automated era.

2. Legal Liability and Professional Malpractice

The integration of AI introduces novel liability questions. When an AI tool misinterprets a complex provision of the Internal Revenue Code, who bears responsibility? Is it the software vendor, the firm that deployed the tool, or the individual CPA who signed the return under Circular 230? CART’s work in developing rigorous risk-management frameworks will be instrumental in establishing industry standards of care, potentially shaping future case law and professional liability insurance underwriting.

3. Information Integrity and Security

Tax data is among the most sensitive personal and corporate information in existence. The widespread use of third-party AI models raises critical concerns regarding data leakage, training data contamination, and compliance with privacy regulations such as IRC Section 7216. CART provides a neutral forum where technologists and regulatory experts can collaborate on secure architectural standards, ensuring that efficiency does not come at the expense of ironclad data protection.

4. Collaboration Between Regulators and Practitioners

Historically, the relationship between tax practitioners and regulatory bodies like the IRS has sometimes been adversarial or purely transactional. By bringing together government representatives, administrative bodies like the Federation of Tax Administrators, and private practitioners, CART fosters a proactive, collaborative dialogue. Aligning expectations between those who enforce tax law and those who practice it will ultimately lead to a more stable, predictable, and technologically resilient tax system.

Conclusion and Next Steps

As the Council on AI Risk in Tax commences its series of working sessions throughout the year, the eyes of the global financial community will be fixed on its outputs. By addressing both the immediate friction points—such as regulatory ambiguities over AI cost savings—and the long-term horizons of algorithmic governance, CART aims to ensure that artificial intelligence serves to strengthen, rather than destabilize, the foundational pillars of the tax profession.

For practitioners seeking immediate guidance, the AICPA continues to update its repository of resources, including introductory guidelines, FAQs on federal tax practice, and ongoing updates regarding regulatory dialogues with the IRS.

To comment on this article, contribute to ongoing research, or suggest future reporting topics, contact Martha Waggoner at [email protected].