The IRS is Upping Their Game with AI: Is Your Family Office Tech-Stacked Ready?

The landscape of data security and compliance for family offices has just entered a new era, driven by the IRS's formidable $80 billion funding allocation, a significant portion of which is aimed at high-net-worth portfolios.

This shift comes with the deployment of advanced AI tools, signaling the IRS's intention to increase audit rates for wealthy individuals. Family offices, already under the watchful eye of the IRS's "wealth squad," must now contend with the enhanced scrutiny of AI-powered audits. This article explores the implications and key takeaways for modern family offices facing this evolving compliance landscape, emphasizing the need for a proactive, tech-forward approach to ensure audit readiness and transparency.

The data security and compliance landscape for family offices just took a sharp turn. Last year, in “ShowYour Work: The new mantra for family offices,” I cautioned the sector about the IRS zooming in on high-net-worth portfolios. Now, with an $80b war chest, the IRS just pulled out their new tools: advanced AI.

The State of Play:

Fueled by the Inflation Reduction Act, the IRS is now deploying sophisticated AI to target high-income brackets.  IRS Commissioner Danny Werfel makes no bones about it – the goal?  Higher audit rates for the wealthy.  

Family Offices, You’re in the Crosshairs:

The IRS’s “wealth squad”, active for a decade, is already notorious for meticulously examining complex tax returns from high-net-worth individuals and their associated entities.  Inject AI into the mix, and their hawk eyes just got sharper.  

Key Takeaways for Modern Family Offices:

Beyond Mere Compliance

While 82% of family offices prioritize shielding wealth from undue taxation, the new game isn’t just about the legality of tax maneuver.  It’s about having an agile system that can transparently, and in real-time, display and prove compliance.

Proactive > Reactive

The latest AI tools from the IRS mandate a“Digital Family Office.”  Not just digital transformation, but a cohesive tech stack that unifies decisions, documents, and actions into a singular, immutable digital space.  This tech platform isn’t just your defense; it’s your eyes on the field, identifying discrepancies and ensuring you’re always “audit-ready.

Your Next Tech Moves:

1.    Assess Your Digital Infrastructure:  Dive into last year’s strategies.  In a move to iPaladin, we noted that across clients, 40% of stored documents were unnecessary, while 8-10% of key documents were missing.  That’s not just data clutter; it’s a symptom of the inefficiency of generic folder storage for complex tax compliance data.

2.    Invest in Digitization:  Ditch the disparate spreadsheet workflows, document vaults, and CRM.  It’s time for a tech-stack overhaul.  Private permissioned blockchains aren’t just for crypto; they’re revolutionizing family office compliance, akin to their impact on supply chains.  What you get is a transparent, secure, and perpetually audit-ready system.  

3.    Stay Tech-Informed:  The IRS’s tech toolkit is expanding.  To counter, be in the know, and perpetuallyiterate your digital strategies.


In conclusion, the financial oversight arena has seen its latest tech upgrade, courtesy of the IRS.  If a wealth squad review were to knock today, would your office’s tech stack hold the line? With shifting goalposts, it’s clear:  only a tech-forward approach will ensure your family office remains ahead of the curve.  Stay agile.  Stay tech-ready.  

Credit - Jill Creager - President & CEO iPaladin

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