What is private AI for a tax firm?
Short answer
Private AI means AI models that run on systems the firm or its vendor controls, so client documents are processed without being sent to a public AI service.
What it is
Public AI tools take whatever is typed or uploaded, send it to the provider's servers, and process it under the provider's terms, which can change. Private AI keeps the model and the data inside a boundary the firm can point to: a server the vendor operates for this purpose, or hardware in the firm's own office. The model can be just as capable; what changes is who can see the input and for how long.
For a tax firm the difference is legal as much as technical. Documents that never leave a controlled system raise no Section 7216 disclosure question for the AI step and are simpler to describe in the WISP.
Why it matters for a tax firm
"We don't train on your data" is a promise about one use of the data. Private AI is about the data not being there at all. The IRS has said practitioners must keep taxpayer data on secure, firm-approved systems when they use AI; private AI is the direct way to meet that.
How XyloDocs handles it
XyloDocs reads and classifies client documents with private, self-hosted models rather than a public AI service. Texts are sent through a carrier gateway, and the AI calls use speech and language services; the document promise is about documents.
Related terms
Read more on XyloDocs
Sources
Questions about Private AI
Is private AI less capable than ChatGPT?
For reading and sorting documents, no: the models are specialized for that job. For open-ended research, public tools may still be stronger, and that is fine because research questions do not contain client documents.
Does private AI mean the vendor cannot see my data?
It means the data stays within systems operated for your firm under your agreement, with access logs, rather than being sent to a general AI service. Ask any vendor exactly where processing happens and who has access.
Last reviewed: October 16, 2026. This glossary explains terms; it is not legal or tax advice. Check the cited source for the current rule.
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