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Your tax preparer may use AI without telling you, experts say

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Your tax preparer may use AI without telling you, experts say

2026-08-04 12:35 UTCBy AlphaScala Research DeskSource reporting: cnbc.comEditorial standards

Your tax preparer may use AI without telling you, experts say

Tax firms are adopting generative AI, but IRS privacy rules haven't been updated since 2013. Experts say consumers should ask preparers how AI is used before signing a return.

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Tax firms are folding generative AI into their workflows, and adoption is climbing. The IRS privacy rules that govern what preparers must disclose to clients have not been updated since 2013, leaving a gap that consumer advocates say is worth asking about before you sign a return.

In June, the IRS released its first AI-related guidance for tax practitioners. It told them they must review and verify AI-generated work and that billing should reflect efficiency gains from AI. The guidance did not say whether using generative AI to prepare a return must be disclosed to the client.

Existing law, Section 7216 of the Internal Revenue Code, says a preparer generally cannot share or use a taxpayer's information for anything other than preparing the return. If information is shared with a third party, the taxpayer must get a signed disclosure spelling out how and why. The law includes exceptions that traditionally applied to tax software, and that is where the ambiguity sits.

"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. The last formal IRS guidance on Section 7216 dates to 2013, he 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."

The AICPA, in its 2026 response to the IRS's annual request for input on which tax issues to prioritize, asked for guidance on the use of technology in tax preparation. It was one of dozens of recommendations in the submission.

Adoption is already broad. A June survey from Blue J, a tax-research platform, and CPA.com of more than 1,000 tax professionals found 60% use AI for tax research at least weekly, up from 33% in 2025. The same survey showed 44% use AI for advisory projects, 40% for tax planning, 39% for compliance research and 36% for document analysis. A 2024 report from the Thomson Reuters Institute, based on a survey of 330 firms, found about 25% used public-facing open-source generative AI and 9% used proprietary tax-specific generative AI.

Whether those uses need a client's sign-off is the open question. Joshua Youngblood, founder of The Youngblood Group in Dallas and an IRS enrolled agent, argues the disclosure should apply. "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?" he said. "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 co-owns an AI tool that provides tax research. It does not ingest client data.

Not all AI is the same, Grzes noted. A platform that uses input to train itself differs from a closed platform that does not, a distinction the IRS could address in additional guidance. Elizabeth Beastrom, president of tax, audit and accounting professionals at Thomson Reuters, said in an email that when an AI platform prepares 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."

Grzes recommends practitioners get a signed disclosure if they use AI to prepare returns, even without formal guidance. "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,'" he 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."

Penalties for knowingly violating the statute include a fine of up to $1,000 or jail time of up to one year, or both. For non-individual returns, a 7216 disclosure can be folded into the engagement letter. For individual returns, the disclosure must be a separate document.

For consumers, the practical step is asking the preparer whether AI touches the return and what guardrails exist. "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 information isn't being shared with outside or unintended parties." He added a warning about vague answers: "If the response is something along the lines of 'don't worry,' 'everything is safe,' or something similar, without explaining what those safeguards are, I would be concerned."