The IRS Office of Professional Responsibility (OPR) has released new introductory guidelines clarifying how existing professional standards under Circular 230 apply to the use of artificial intelligence (AI) by tax practitioners. (OPR Alert 2026-19, 6/24/2026)
The guidance stresses that while AI offers powerful tools, practitioners remain fully responsible for the accuracy of their work, the confidentiality of client data, and the reasonableness of their fees.
Real-world consequences of improper AI use
Citing recent court cases where lawyers were sanctioned for using generative artificial intelligence (GAI), the OPR warns that tax professionals face similar risks. The use of AI has led to filings containing fabricated information, commonly called “hallucinations,” such as fake case citations. Penalties in these cases have included significant financial sanctions, public censure, and mandatory ethics courses.
The alert notes that these issues are not limited to the legal field, highlighting an example where Deloitte Australia reportedly agreed to a partial refund after an AI-produced report for the government contained invented quotes and references to non-existent books.
Applying due diligence and competence standards to AI
Under Circular 230, practitioners must exercise due diligence and competence. According to the OPR, this means practitioners cannot solely rely on AI and must thoroughly review all AI-generated documents for accuracy before submitting them to the IRS or providing them to clients. Human scrutiny is essential to ensure correctness.
The guidance clarifies that competence (§ 10.35) now requires an understanding of the technology used in client representation, including its risks and limitations. A lack of technological competence, the OPR states, could lead to flawed filings or improper advice.
Ensuring fair billing for AI-assisted work
The guidelines remind practitioners that Circular 230 prohibits charging “an unconscionable fee” (§ 10.27(a)). When AI tools reduce the time needed for research and drafting, billing for the full manual labor time that was not spent could violate this rule. The OPR advises that cost savings from AI should be passed on to clients, and billing practices must openly reflect the efficiencies gained.
Meeting written advice standards when using AI
The guidelines also address the requirements for written advice under Circular 230 (§ 10.37). When practitioners use AI to help draft written advice on federal tax matters, they must ensure that the advice is based on reasonable factual and legal assumptions and that all relevant facts and circumstances are properly considered. Because AI-generated projections, financial forecasts, and citations cannot be taken at face value, practitioners must independently verify them before relying on them in any written advice provided to clients.
The OPR warns that if an AI system’s underlying logic is opaque, relying on its outputs may itself constitute unreasonable reliance under § 10.37. Practitioners should treat any AI-drafted written advice as a starting point only, subject to thorough independent review and authentication of all factual and legal information before it is delivered to a client.
Protecting client data when using AI platforms
The alert emphasizes the strict rules against unauthorized disclosure of tax return information, citing potential civil and criminal penalties under IRC § 6713 and IRC § 7216(a). Practitioners are warned that uploading sensitive client data to unsecured or public AI platforms presents a significant risk. The OPR states that firms must handle all client data using only secure, enterprise-approved AI systems with robust confidentiality safeguards in place.
Firm responsibilities for AI policies and training
Firm leadership has a responsibility under § 10.36 to ensure compliance with Circular 230. The OPR guidance specifies that this includes implementing internal policies and procedures for the use of AI. Firms must:
- Provide comprehensive training to all staff on the risks and requirements of using AI.
- Establish and document protocols for secure data handling and monitoring AI accuracy.
- Thoroughly vet any third-party AI tools before use.
Best practices for responsible AI use
The OPR concludes by summarizing best practices for practitioners using AI, including:
- Identifying and staying current on all relevant federal and state AI laws and regulations.
- Establishing secure data handling protocols and access controls.
- Documenting all AI usage and verification processes.
- Vetting third-party AI offerings before purchasing or using them.
- Never uploading sensitive data to unsecured sites.
- Treating all AI-generated text as a first draft that requires thorough human review for factual and legal accuracy.
- Note. At the time of publication, California, Colorado, Illinois, and Utah, have enacted AI governance legislation focusing on transparency, reducing bias, and protecting consumers. In addition, professional organizations such as the American Bar Association have released guidance. For example, the ABA’s Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 512, titled, Generative Artificial Intelligence Tools, on July 29, 2024.
For more information about the IRS Office of Professional Responsibility, see Checkpoint’s Federal Tax Coordinator 2d ¶ T-10901.1.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
