IRS Releases an Update to its Strategic Operating Plan

Last year, the IRS released its inaugural Strategic Operating Plan (SOP) following the award of billions under the Inflation Reduction Act to transform operations and taxpayer experience at the agency.

Priorities of the plan include improving services to help taxpayers meet their obligations and receive tax incentives when eligible; quickly resolving taxpayer issues; focusing on expanded enforcement on taxpayers with complex tax filings; delivering cutting-edge technology, data, and analytics for efficient operation; and attracting and retaining a highly skilled workforce. According to the SOP, modernizing agency technology is the underlying factor to the success of the plan, particularly in achieving the first three priorities.

Marking the first anniversary of the plan, the IRS recently provided an update on the SOP, reporting on progress from the first year as well as issuing a supplement to summarize current and future work under the SOP. According to the IRS, year one accomplishments include hiring thousands of new customer service representatives, expanding online tax services, leveraging data and AI in audit and tax enforcement selections, and modernizing technology to enable and accelerate tasks such as replacing aged scanning equipment and automating mail sorters at high volume locations.

Within the supplement, the agency maps out the next 12-18 months of initiatives to continue delivering on the five primary objectives of the Strategic Operating Plan. The below list focuses on the technology advancements the IRS plans to pursue in 2024 and 2025 under the plan:   

• Digitally extract data form priority scanned tax return forms for processing.
• Digitally transform a small set of priority IRS internal processes related to digital intake, inventory management and data redaction.
• Develop and integrate high priority software tools into operations (i.e. advanced tax calculators, modern case management software).
• Initiate technology and business process changes to flexibly generate taxpayer notices.
• Use advanced analytics to measure success of tax scam identifications and find areas of vulnerability.
• Apply improved data and analytics practices to design and implement enforcement practices that aim to improve fairness.
• Use new analytical approaches to identify high-risk compliance cases.
• Continue developing an enterprise data platform for taxpayer services and compliance functions.
• Deliver RPA “bots” to replace high-volume manual processes.
• Process the 2025 tax season using modern coding languages and allow for the retirement of 60+ year old legacy code.
• Deliver the first increment of a modernized Business Master File database to enable taxpayers to access and update data through Business Tax Accounts.
• Make data from business, individual and information returns available to e-filing applications through application programming interfaces.
• Implement a new operating model for accelerated deliver of IT products, tools and improvements.
• Shift technology development efforts to a product-and-platform model to accelerate delivery of critical technologies.
• Modernize infrastructure to support innovation, research, analysis, prototyping, algorithm development and testing.
• Enhance cybersecurity capabilities including multifactor authentication and data-at-rest encryption.
• Implement enhanced security audit trails and advanced logging.
• Advance cyber monitoring, cyber fraud analytics and incident response capabilities.
• Evaluate further access models for use of third party data and complete pilot integration of corporate registry data into IRS data platforms.
• Create synthetic data to share with external partners.
• Assess, create ad make available high-quality data in machine readable formats to support innovation and operational improvements.

AI’s Role in IRS Services and Enforcement

Speaking at the AI for Mission Impact event last month, IRS Commissioner Daniel Werfel described the agency’s vision for AI taking place among two channels: services and enforcement. In terms of services, Werfel explained that the IRS needs AI-powered solutions to help taxpayers get the correct answer to simple questions they have over the phone and reducing hold times. The IRS is just starting to develop these solutions and hopes over time to apply AI for more complicated customer questions, Werfel stated.

In terms of enforcement, the commissioner stated that AI is like putting night vision goggles on to unlock and spot issues, such as viewing how money may be moving illegally. Werfel likened AI in IRS enforcement to a chess match, where AI is helping the IRS become a better “chess player,” though the humans ultimately make the final decision on what moves to play.    

Also at the event was Teresa Hunter, CFO at IRS, who made a case for GenAI at the agency. According to Hunter, the IRS is currently taking mounds of physical documents and scanning and extract information from them. Instead, the IRS is hoping to use GenAI to perform the process so that the workforce does not have to deal with it by this time next year, stated Hunter.